Introduction

This report is focused on providing the management team of Radio One, Inc. with an analysis of the acquisition they are considering. The acquisition includes 21 radio stations, 12 from Clear Channel, which has to divest because of their merger with AMFM Inc., six from Davis Broadcasting and three more from Shirk, Inc. and IBL, LLC.

The remainder of this report is structured as follows. First, a business case will be made as to provide insight into the relevance and feasibility of the acquisition for Radio One, Inc. Thereafter, the package that is under consideration to be acquired, will be valued and this valuation will be extensively covered. Lastly, a bidding strategy to successfully acquire the package of radio stations will be recommended.

Business Case

In this section, the relevance of the package of radio stations under consideration to be acquired will be evaluated. In particular, an answer will be formed to the question: why should Radio One, Inc. buy this package of radio stations?

The main strategy of Radio One, Inc. is to provide urban-oriented music, entertainment, and information to a primarily African-American audience in as many major markets as possible. Because the biggest part of the radio stations for sale are in urban format and they are in the top 50 African-American markets, their acquisition would significantly improve Radio One, Inc.’s presence in the market. In particular, the acquisition of these 21 radio stations would create nationwide coverage overnight. Among the radio stations, is a radio station in LA, which is the fourth largest African-American market so this would be particularly attractive for Radio One, Inc. to enter this market.

Radio has always been a very attractive way for companies that want to advertise because it was a means by which people can be reached when they are home, at work or in the car. Because Radio One, Inc. focuses on a certain segment of the entire radio market, companies that want to target this specific segment see a lot of value in advertising their brands through Radio One, Inc. If Radio One, Inc. would acquire the 21 radio stations under consideration, it could significantly broaden its reach all over the country and hence provide the companies seeking advertising time with a means to reach more people in the United States. Because of these enlarged reach and nationwide coverage, the advertising revenues for Radio One, Inc. would very likely take a big surge. The reason for this is that Radio One, Inc. would be able to charge higher prices to its customers. However, this is under the assumption that most of the customers of Radio One, Inc. desire enlarged reach in the United States. The acquisition of the radio stations would once again lower the number of players in the market, reducing competitive pressures. These reduced competitive pressures could create opportunities for Radio One, Inc. to further increase its prices of advertising because they could become one of the most important ways in which companies can advertise to the African-American public.

The acquisition of the 21 radio stations would make Radio One, Inc. a much bigger player in the market, doubling in size. Because of this larger size, the company would most certainly experience economies of scale. A big source of these economies of scale is the cost savings brought about by the increase in size. Radio One, Inc. would double in size but this would not create a need to double the administration and sales staff. Although the staff will definitely need to be expanded, it should certainly not be doubled.

Many of the radio stations that are to be acquired have management teams with strong positions in their markets. It would be a good idea to maintain these management teams and leverage their knowledge of the market(s) to other radio stations already under Radio One, Inc.’s control. In this way, the current radio stations performance can also be enhanced.