Disney Explores Multistep Plan For Radio Spinoff, Cash Pullout
By DENNIS K. BERMAN and SARAH MCBRIDE
Staff Reporters of THE WALL STREET JOURNAL
July 12, 2005; Page C4
As Walt Disney Co. explores the fate of its roughly $3 billion radio station and network group, the company is considering a multistep process to both extract cash and structure a tax-free spinoff to Disney shareholders, according to people briefed on the company's plans.
Disney has debated for years the role of radio in its media conglomerate, but Chief Executive Officer Michael Eisner has resisted any dramatic change at the unit, which consists of 71 stations and a separate radio network that reaches 4,500 affiliate stations with programming including ABC News Radio and ESPN Sports Radio. It is still possible that Disney may retain its radio interests, but the coming ascendancy of CEO-elect Robert Iger opens the possibility that change may finally be afoot.
That change, say people familiar with the matter, could be structured along the following lines: Disney would contribute debt to the radio unit to extract some cash. It would then spin off and merge the business with another radio company, with Disney shareholders holding at least 50% of the new company's combined equity. That would limit taxes on the whole transaction.
This tax treatment is known as a "reverse Morris Trust" and was used most notably when AT&T Corp. sold its cable unit to Comcast Corp. in 2001 and when J.M. Smucker Co. bought Jif peanut butter from Procter & Gamble Co. that same year.
Disney's task is to find a buyer, and the Burbank, Calif., company is sounding out players across the radio business about a deal, according to people briefed on the talks. One person briefed on the talks described the process as a soft auction, which means it doesn't have a real deadline.
To fit the reverse Morris Trust rules, however, the other side of the deal must be of relatively equal size. That means the most likely suitors are the likes of Atlanta's Radio Inc., the nation's third-largest broadcasting company in terms of revenue; Las Vegas-based Citadel Broadcasting Corp., the fifth-largest U.S. radio group; Entercom Communications Corp., of Bala Cynwyd, Pa.; and Emmis Communications Corp., of Indianapolis.
Analysts value the Disney stations at about $1.5 billion to $1.75 billion and the network at about $1.25 billion to $1.5 billion. Disney executives so far have stopped short of stating they are certain they will sell, according to the people familiar with the matter, nor have they issued a prospectus or requested proposals, say people briefed on the matter. Disney referred questions to a spokeswoman for its radio group, who declined to comment.
In fact, it seems unclear that selling the stations makes sense for Disney, where the radio business appears healthy. The company doesn't break out radio revenue, but analysts estimate it at $700 million. Analysts believe its stations are growing faster than the overall industry, which boosted revenue by 2% last year.
Also, compared with other entertainment conglomerates such as Viacom Inc., Disney has done impressive work integrating its radio assets into the rest of its business. Its news, sports, and children's radio divisions are very much dependent on the overall ABC News, ESPN Sports, and Disney franchises it has built in television and, in the case of Disney Radio, theme parks. For that reason, Disney may be less attached to the stations than the networks, say people familiar with the matter.
But breaking the radio group away from Disney would remove a potential drag on the company's overall growth rate. Even though its radio division performs well, the sluggishness of the overall radio industry may be hurting investor perception of Disney. If radio were spun off, investors would presumably value the remaining media giant more favorably, analysts say, which would help boost Disney's stock price.
Disney's stations, the biggest of which were first acquired in the Capital Cities/ABC deal in 1995, represent beachfront radio property. Many of ABC's stations rank in the nation's top 25 radio markets, making them plum acquisitions for the nation's radio groups.
Disney syndicates several top radio personalities such as Sean Hannity and Paul Harvey. Mr. Harvey, in his mid-80s, generates as much as $70 million in revenue for the company. Any agreement would have to include a discount that would kick in should Mr. Harvey stop broadcasting for any reason, potential buyers say, complicating negotiations.
Write to Dennis K. Berman at dennis.berman@wsj.com and Sarah McBride at sarah.mcbride@wsj.com
By DENNIS K. BERMAN and SARAH MCBRIDE
Staff Reporters of THE WALL STREET JOURNAL
July 12, 2005; Page C4
As Walt Disney Co. explores the fate of its roughly $3 billion radio station and network group, the company is considering a multistep process to both extract cash and structure a tax-free spinoff to Disney shareholders, according to people briefed on the company's plans.
Disney has debated for years the role of radio in its media conglomerate, but Chief Executive Officer Michael Eisner has resisted any dramatic change at the unit, which consists of 71 stations and a separate radio network that reaches 4,500 affiliate stations with programming including ABC News Radio and ESPN Sports Radio. It is still possible that Disney may retain its radio interests, but the coming ascendancy of CEO-elect Robert Iger opens the possibility that change may finally be afoot.
That change, say people familiar with the matter, could be structured along the following lines: Disney would contribute debt to the radio unit to extract some cash. It would then spin off and merge the business with another radio company, with Disney shareholders holding at least 50% of the new company's combined equity. That would limit taxes on the whole transaction.
This tax treatment is known as a "reverse Morris Trust" and was used most notably when AT&T Corp. sold its cable unit to Comcast Corp. in 2001 and when J.M. Smucker Co. bought Jif peanut butter from Procter & Gamble Co. that same year.
Disney's task is to find a buyer, and the Burbank, Calif., company is sounding out players across the radio business about a deal, according to people briefed on the talks. One person briefed on the talks described the process as a soft auction, which means it doesn't have a real deadline.
To fit the reverse Morris Trust rules, however, the other side of the deal must be of relatively equal size. That means the most likely suitors are the likes of Atlanta's Radio Inc., the nation's third-largest broadcasting company in terms of revenue; Las Vegas-based Citadel Broadcasting Corp., the fifth-largest U.S. radio group; Entercom Communications Corp., of Bala Cynwyd, Pa.; and Emmis Communications Corp., of Indianapolis.
Analysts value the Disney stations at about $1.5 billion to $1.75 billion and the network at about $1.25 billion to $1.5 billion. Disney executives so far have stopped short of stating they are certain they will sell, according to the people familiar with the matter, nor have they issued a prospectus or requested proposals, say people briefed on the matter. Disney referred questions to a spokeswoman for its radio group, who declined to comment.
In fact, it seems unclear that selling the stations makes sense for Disney, where the radio business appears healthy. The company doesn't break out radio revenue, but analysts estimate it at $700 million. Analysts believe its stations are growing faster than the overall industry, which boosted revenue by 2% last year.
Also, compared with other entertainment conglomerates such as Viacom Inc., Disney has done impressive work integrating its radio assets into the rest of its business. Its news, sports, and children's radio divisions are very much dependent on the overall ABC News, ESPN Sports, and Disney franchises it has built in television and, in the case of Disney Radio, theme parks. For that reason, Disney may be less attached to the stations than the networks, say people familiar with the matter.
But breaking the radio group away from Disney would remove a potential drag on the company's overall growth rate. Even though its radio division performs well, the sluggishness of the overall radio industry may be hurting investor perception of Disney. If radio were spun off, investors would presumably value the remaining media giant more favorably, analysts say, which would help boost Disney's stock price.
Disney's stations, the biggest of which were first acquired in the Capital Cities/ABC deal in 1995, represent beachfront radio property. Many of ABC's stations rank in the nation's top 25 radio markets, making them plum acquisitions for the nation's radio groups.
Disney syndicates several top radio personalities such as Sean Hannity and Paul Harvey. Mr. Harvey, in his mid-80s, generates as much as $70 million in revenue for the company. Any agreement would have to include a discount that would kick in should Mr. Harvey stop broadcasting for any reason, potential buyers say, complicating negotiations.
Write to Dennis K. Berman at dennis.berman@wsj.com and Sarah McBride at sarah.mcbride@wsj.com