ASTRAL FINE-TUNES DETAILS OF STANDARD PURCHASE Analysts split on whether company is paying too much Grant Robertson – Globe and Mail Though Astral Media Inc. has announced its intention to buy Standard Radio Inc., key details must be worked out this week, including which broadcasting businesses are included in the deal — such as its burgeoning Internet radio operation.
Astral revealed Friday that it signed a letter of intent to buy “substantially all of the assets” of Standard for a price expected to be roughly $1.2-billion.
The deal will include Standard's 52 commercial radio stations — which will turn Astral into the country's leading AM and FM broadcaster with 81 stations in total — and could be finalized in March.
Astral is scrutinizing the value of Standard's Internet radio business, called Iceberg Radio, which has been an important piece of its internal growth strategy over the past year, a source close to the deal said. It is not clear whether Standard wants to part with that business. Standard's 40-per-cent stake in Sirius Canada satellite radio, which could be valued in the hundreds of millions, is not included in the deal.
Executives at Montreal-based Astral will also spend the next several days poring over the financial books of Standard's operations, including an advertising sales company and two television stations in northern British Columbia.
The companies haven't disclosed the value of the deal, but analysts are already waging a lively debate over whether Astral is paying too much to grab one of the few remaining acquisition targets in the country's shrinking media sector.
Astral has said it will pay 80 per cent of the purchase price in cash, while funding the remainder through its non-voting shares.
“It's really premature for anyone to talk about price, multiples, any kind of valuation on the deal at this point [because] no one's going to know what's included,” Standard chief executive Gary Slaight said. “We haven't finalized anything yet.”
Analysts have been mixed over whether the deal is a good one for Astral shareholders. Since Standard is privately held, its financials aren't disclosed. The company revealed a snapshot of its earnings last summer, though, when it filed for a possible income trust conversion, which it later scrapped.
With a purchase price of $1.1-billion or more, and EBITDA (earnings before interest, taxes, depreciation, amortization) of $70-million to $80-million, BMO Nesbitt Burns Inc. analyst Tim Casey said on Friday that the acquisition multiple is as high as 14 to 15 times earnings.
“We think this would be a bad deal for shareholders,” Mr. Casey said in a note to clients, adding it could be tough to increase the performance of the radio operations, which already lead the industry.
However, Scotia Capital analyst Andrea Mitchell predicts Standard could have EBITDA of $89-million to $100-million over the next two years, which brings the multiple paid to below 12 times. “Even at the rumoured price and our estimated EBITDA, we see a lot of implications that should be positive,” Ms. Mitchell said in a note to clients.
Astral has been under pressure for years to use its growing cash stockpile on a major acquisition. Now that it's on the brink of acquiring Standard, the Montreal broadcaster must prove the deal is the right one for investors.
“As a shareholder, we just want to make sure that any deal that's done is accretive and any premium that's paid is not too rich,” said Anil Tahiliani, head of research at McLean and Partners Wealth Management Ltd. in Calgary. “We don't want companies that want to grow, just to grow. Because in the past when that's happened, it's either they've overpaid or they end up making execution mistakes.”
The company's stock fell nearly 4 per cent Friday as rumours of the deal swirled. Over the past few years, the markets have been pining for a deal between Astral and Corus Entertainment Inc., which is controlled by Shaw Communications Inc., but that transaction is now likely off the table, observers says. |