Market mixed on radio stocks
Entravision offering raises more than expected but Nassau cancels IPO
By Elizabeth A. Rathbun -- Broadcasting & Cable, 8/6/2000 8:00:00 PM
As the hot market for radio stocks cools, one broadcaster last week abandoned plans to go public while another, with Hispanic roots, found Wall Street hungry for its offering.
Nassau Broadcasting Partners LP not only withdrew its initial public offering last Tuesday (Aug. 1), but the next day said it would hire Salomon Smith Barney "to explore strategic alternatives." That usually indicates a company is for sale. Nassau is the nation's 21st-largest radio group by estimated 1999 revenue, according to BIA Research.
On the other hand, No. 19 radio group Entravision Communications' IPO last Wednesday generated such strong interest that its offering price was increased from about $14 per share to $16.50. That raised nearly 17.9% more than expected-$759 million, as opposed to $644 million. The stock closed at $19 last Wednesday and traded up to $18.75 last Thursday.
Entravision had several advantages over Nassau when it came to going public, Wall Street analysts say. Princeton, N.J.-based Nassau owns or operates 32 radio stations in the suburbs of the low-growth Northeastern suburbs.
Entravision, which is headquartered in Santa Monica, Calif., owns or operates 60 radio stations, most in major Hispanic markets including Los Angeles and Miami, and 17 Univision-affiliated TVs.
The backing of Univision Communications, which now owns 26% of Entravision, is "a fantastic endorsement to have," says Vinton A. Vickers, a media analyst who covers the former for Chase H & Q. Univision has "the best cash-flow results of any broadcaster, radio or TV. That is a fact not lost upon investors."
And Hispanics currently account for more than 11% of the U.S. population, a number that is growing six times faster than that of the non-Hispanic population, according to Entravision's July 26 filing with the SEC. Hispanics are expected to become the nation's largest minority group by 2005.
Entravision also is the only media company that owns both Spanish-language TV and radio stations, Vickers says. It is "clearly a different type of play." Entravision officials were not available for comment.
Entravision's public success also is different, given the stock market's current chilliness toward all radio stocks, Vickers says. While the first half of this year saw "perhaps the best growth we've seen in the last 30 years, [radio companies'] stock prices have continued to decline. Investors are obviously concerned that in a slowing economy, radio growth is going to slow down."
The kind of growth that radio has enjoyed cannot be sustained, analysts agree. The industry still is expected to accumulate plenty of revenue; it just won't be the "ridiculously strong growth" that has been experienced recently, according to one analyst.
That factor probably helped convince Nassau to cancel its IPO, says the analyst, who asked not to be identified. Also, while Nassau has "great numbers and management ... it was less clear how they were going to replicate that in other parts of the country," this analyst notes.
According to a statement from Nassau President Louis F. Mercatanti Jr., the offering was canceled "in light of ... recent volatility in the market." As Nasdaq has faltered recently, so has radio, which "generally trades in sympathy with the technology stocks," Mercatanti said in the statement. He could not be reached for comment.
Nassau's withdrawal and subsequent "calls from the media, from bankers, from institutional investors and more" sparked plans "to move into the next phase of our corporate development," Mercatanti said in a second release.
Nassau had hoped to sell 12.425 million shares of stock at $16 to $19 each, according to company documents filed with the SEC on July 10.
The net proceeds, expected to be about $201 million, had been intended to finance certain station acquisitions.
The proceeds of Entravision's offering will be used mostly to finance the company's $475 million acquisition of radio group Z-Spanish Media and refinance the $252 million buy of radio company, Latin Communications Group.
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