NEW YORK (CNNfn) - Media conglomerate Viacom Inc. offered Tuesday to purchase the remaining shares of Infinity Broadcasting Corp. it does not already own for nearly $15.5 billion in stock, hoping to reunite the radio broadcasting company with its one-time parent CBS.|
Infinity immediately named a two-member special committee consisting of independent directors to review the proposal, which offers to swap 0.564 shares of Viacom's Class B common stock for each outstanding Infinity share.
Viacom (VIA.B: Research, Estimates) currently holds 100 percent of Infinity's Class B common stock, representing 64.3 percent of the company's equity and 90 percent of the combined voting power of its Class A and Class B stock. However, it does not hold any of the company's approximately 387 million Class A shares.
The offer values each Infinity (INF: Research, Estimates) class A share at $40.04, a 13.6 percent premium over the company's closing price of $35.25 Monday.
The bid also values Infinity at 26 times the company's expected EBITDA (earnings before interest, taxes, depreciation and amortization) this year, according to one analyst. The most recent private radio deals have valued companies at slightly more than 20 times EBITDA, the analyst said.
Infinity shares jumped on news of the offer, climbing 4-3/16 to close at 39-7/16 while Viacom's Class B shares shed 1-5/8 to 69-3/8.
Mobile stock, cash flow drive deal
The transaction would provide Infinity shareholders with a higher valued stock while giving Viacom access to more than $1 billion a year in free cash flow, analysts said.
"With both Viacom's and Infinity's core businesses performing at record levels, it is the perfect time to bring them more closely together," said Viacom Chairman Sumner Redstone. "Combining Infinity with Viacom will now create a company that is financially even stronger and strategically even better positioned to generate superior returns."
Prior to Tuesday's announcement, Infinity shares had actually declined slightly year-to-date, as the company missed out on the media consolidation wave that drove industry shares higher. Viacom's shares, meanwhile, bolstered by the addition of the CBS television network, have climbed by nearly 50 percent since mid-April.
"It's certainly a fair deal," said Christopher Ensley, an analyst with Lazard Freres & Co. "It's nice to see Viacom put their money where their mouth is."
New York-based Infinity currently owns and operates 166 radio stations across the country, and became the No. 1 outdoor advertising company in North America through its acquisition of Outdoor Systems last year. The company's radio formats range from country to rock to the antics of controversial talk radio host Howard Stern.
Acquiring Infinity would bolster Viacom's already broad range of media properties. The company operates everything from the CBS and MTV television networks to publisher Simon & Schuster, and owns an 82 percent stake in Blockbuster (BBI: Research, Estimates).
Viacom can use Infinity's nearly $1.2 billion in free cash flow to invest in cable, buy more television stations, buy back stock or expand MTV International, said analyst Vinton Vickers, of Chase H&Q.
"This is a good deal for Viacom," Vickers said. "Infinity has great assets and they generate tremendous amount of cash flow."
The Infinity deal should add to Viacom's earnings per share for fiscal 2001, said analyst David Londoner, of ABM AMRO Inc.
Londoner is maintaining his 12-month $85 price target for Viacom.
It also would be but the latest step in a tumultuous ownership history for Infinity, which has gone public twice and survived a leveraged buyout and two acquisitions in the last 15 years. The company also served as a training ground for current Viacom President and Chief Executive Mel Karmazin, who built the company into a nationwide power.
Infinity was spun off from its then parent CBS Corp. in 1998 in a public offering that raised $3 billion. Viacom purchased CBS in May for nearly $40 billion, inheriting the company's voting control of the radio and advertising firm.
During the merger process, Redstone repeatedly pointed to Infinity's growth potential as a main driver for the deal.
"The reason this was never possible for CBS was CBS traded at a substantial discount [to Infinity] no matter what valuation you looked at," Ensley said. "But when you started seeing Viacom get up into the $70 range, you knew it was a possibility."
Viacom said the merger is subject to approval by the company's independent directors, Bruce Gordon and Jeffrey Sherman, who hope to make a decision by the end of the third quarter, according to a company spokesman.
The proposed deal comes just one day after News Corp. (NWS: Research, Estimates) purchased television broadcaster Chris-Craft Industries (CCN: Research, Estimates), which had been negotiating a sale with Viacom before the company's price tag moved too high.
However, analysts said the two deals are unrelated. The Chris-Craft transaction may have spurred Viacom to delay its deal for Infinity, but Viacom didn't choose Infinity as a runner-up.
"They were going to buy Infinity anyway," said analyst Geoffrey Jones, of Donaldson Lufkin & Jenrette.
Some analysts speculated that News Corp.'s purchase would signal the end for Viacom's UPN network, which is distributed over Chris-Craft's 10 television stations.
But analysts discredited suggestions that the Chris-Craft acquisition was causing Viacom to take action.
"Viacom has a history of being acquisitive," Chase's Vickers said. "They were going to beef up their existing properties anyways."