CBS Tunes Out Radio Business With Tax-Free Entercom Merger

  • $1.6 billion deal creates No. 2 U.S. radio station owner
  • Parent company failed to find a buyer for historic radio unit

CBS Radio Inc. is merging with broadcaster Entercom Communications Corp., giving parent CBS Corp. an exit from the shrinking AM/FM radio business after prospects for an outright sale or initial public offering dwindled.

In the tax-free deal, CBS will combine its group of stations dating back to the inception of Columbia Broadcasting System in 1927 with Entercom’s to create the second-largest radio broadcaster in the U.S., behind IHeart Media Inc. David Field, chief executive officer of Entercom, will lead the combined company.

CBS, one half of Sumner Redstone’s family media empire, has been looking to get out of the terrestrial radio business for at least the past year, with listeners fleeing and advertising revenue in a tailspin amid tough online competition from Pandora and Spotify. The CBS TV network under Leslie Moonves is much more profitable, still the most-watched in the U.S. After striking out with potential buyers, the company pursued an IPO, similar to what it did with its outdoor segment. That effort also came up short.

The deal with Entercom gives CBS a way out using a Reverse Morris Trust, a tax-free transaction in which one company merges with a spun-off subsidiary, according to a statement Thursday. CBS shareholders will receive 105 million Entercom shares, valued at more than $1.6 billion currently, and own 72 percent of the combined company, while Entercom holders will get 28 percent. Entercom will be the surviving public company.

Shares of CBS were little changed at 11:00 a.m. in New York Thursday after rising as much as 1.2 percent to $65.35. Entercom soared as much 17 percent to $16.55.

The combined CBS Radio-Entercom will be a formidable player in radio with 244 radio stations nationwide, including WFAN and 1010 WINS in New York, KNX in Los Angeles and WBBM in Chicago, and the broadcasting rights to 45 professional sports teams in the U.S.

“Entercom now represents the only viable way for investors to play terrestrial radio in the U.S.,” Bloomberg Intelligence analyst Paul Sweeney said. “The combined company will have a strong collection of stations in the top markets and the strongest balance sheet in the industry.”

The deal must be approved by shareholders of Bala Cynwyd, Pennsylvania-based Entercom. Chairman Joseph Field has already agreed to vote in favor of transaction.

Morgan Stanley & Co. and Centerview Partners are advising Entercom, with Latham & Watkins LLP providing legal counsel. Goldman Sachs & Co. is advising CBS, and Wachtell, Lipton, Rosen & Katz is serving as legal counsel.

The deal, subject to regulatory approvals, is expected to close in the second half of this year.

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