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Anand Amrit Raj 1


Vivek Bhandari 4
Armine Bharucha 5
Prerna Bhatt 7
Revati Deshmukh 11
Sandra Fernandes 12
Sachin Gawade 14
Srirama Subramanian 24
Reena Rajgor 39
Nandita Sheth 44
Hema Suchde 49
Lavina D'souza 61
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m Radio One was founded by Catherine Hughes
in m 

m Gn 1980 Hughes and her husband raised money


to purchase WOL-AM in Washington, D.C for
just under $ 1 million.

m Radio One the largest radio group targeting


African ± Americans in the country.
m Radio One has achieved tremendous success by
purchasing underperforming radio station.

m Gn 1995 Liggins ( CEO & President ) introduced new radio


station to the Atlanta, Georgia market, African ± American
population.

  
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m Radio One strategy was to provide urban-oriented music,
entertainment, and information to African ± American
audience.

m Radio One pursued a clustering


strategy.

m They acquired two or more stations


that targeted different demographic
segments within African ± American
population.

m Radio One centralized certain


functions i.e. finance, accounting,
legal, HRM, information system and
others.
m Advertisers were reluctant to pay to African-American
urban listeners, as their income lagged behind listeners to
mainstream radio stations.

m Radio One convinced the


advertisers that African ± American
population purchase more of certain
good and services than general
population.

m Advertisement spending in Radio


grew from 6.4% in 1992 to 7.5% in
1998 to 8.2% in 1999.
m Federal Communications Commission
(FCC) relaxed existing regulations to allow
one company to own 2 FM stations in one
market or 36 stations nationwide (18 AM & 18
FM).

m The Telecommunications Act of 1996 lifted


all of the limitations on ownership.
m After the acquisition of the 12 urban stations, Radio One
becomes the market leader.

m The acquisition provides a wider scope of expansion in


media such as internet, cable radio and recording.

m The acquisition can create some synergies for Radio One i.e.
merging some of Radio Ones departments like finance,
marketing and others.

m Acquisition enables Radio One to provide better service to


African ± American audience.
m Gmportant risk factor is the level of
cannibalization.

m Whether the business culture is in line


with the Radio Ones existing business.

m Clear Channel Communications has the


obligation from FFC to divest some radio
stations. Radio One why they want to sell
these 12 radio stations.

m Rating agencies like Moody's & S&P can


cut down Radio Ones credit ratings when
they have doubt about the creditworthiness
after the acquisition.
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Allocation rate corporate overhead expenses to potential markets 0.31
Allocation rate corporate depreciation and amortization to potential markets 0.84
Taxes 35%
Company Rating A
Growth Rate ( After 2004 ) 2%
Market Risk Premium 5%

m Ratio for corporate expenses and depreciation & amortization based on


exhibit 6 & 9. Corporate expenses were $4,155,000 in 1999 and for
potential market plus Radio One were $6,000,000.
So $1,845,000 of $6,000,000 ( 30.75%).

m Same is done for depreciation and amortization.


Assumption 1

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   [ Consolidated statement of Operation as of 1999 ]    
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   [ Actual & Projected Financial for Exsiting and New Market as of 1999 ]  
 

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Allocation of Rate Corporate overhead expenses to potential market 0.3075

Assumption 2

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!( )    [ Consolidated statement of Operation as of 1999 ] **   
'# 
!( )    [ Actual & Projected Financial for Existing and New Market] as of 1999 ] *&+ 
 

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Allocation of Rate Corporate overhead expenses to potential market 0.8412

Assumption 3

Corporate Tax 35%

Assumption 4

Company Rating A ,  $ 


,

Assumption 4

Growth Rate (After 2004) 2%

Assumption 5

Market Risk Premium 5%

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m When Radio One offers 30 times its BCF, the company will
make a bid of $ 1531.14 million ( 30 x $ 51.038 million ).

m This is $ 200 million higher than we found using the DCF


analysis, and the Transactions & Trading Multiples Approach.

DCF ± $ 1334.03 million.


Transaction - $ 1300.82 million.
Trading Multiples - $

m Hence the bid of 30 times the BCF of Radio One is too high
for acquiring the radio stations.
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