Late-night addendum to the Pandora analysis: “Enterprise value”

Now that I think about it, a better way to do the math in the “RAIN Analysis” in our June 3rd issue might be, rather than looking at market capitalizations, to look at the “enterprise values” of radio station groups — how much the stations themselves are worth, as represented by the sum of what the shareholders own (i.e., the market capitalization) and what the banks own (i.e., the company’s debt).

Example: At the moment, the stock market thinks that Emmis’s assets are worth $365 million (its “enterprise value”); but since Emmis has $325 million in bank debt, the remaining value owned by shareholders is only $40 million (its “market capitalization”). You can think of it this way: If you wanted to own all of Emmis’s radio stations free and clear, you’d theoretically have to pay $365 million, since you’d have to buy all the stock and pay off the bank debt.

(Incidentally, Pandora’s enterprise value and its market cap will be almost identical, since the company has very little bank debt.)

In terms of enterprise value, Sirius XM leads the pack with a value based on its stock price today of $8.4 billion. Based on this week’s stock prices, Entercom’s stations are currently worth $970 million; Cumulus’s stations are worth $740 million, Radio One’s are worth $760 million, Saga’s are worth $245 million, and so forth. Privately-held Clear Channel Radio and the CBS Radio division of CBS Corp., with six and three times the revenues of Entercom, respectively, would probably be reasonably valued this week at somewhere over $6 billion and $3 billion. Citadel is in the process of being acquired by Cumulus in a deal that assigns Citadel an enterprise value of $2.4 billion (although Citadel’s revenues are only about 50% larger than Entercom’s).

Thus, at a $1.3 billion valuation, Pandora would be, in terms of enterprise value, the country’s fifth-largest radio operator, after Sirius XM, Clear Channel, CBS Radio, and the upcoming Citadel/Cumulus combination. But a pretty-distant fifth.

At least for now.

Kurt Hanson