# Radio One, Inc Harvard Case Solution & Analysis

## Radio One, Inc Case Study Solution

The enterprise value is calculated using the average multiples given in Exhibit 8. The multiples included for Cash Flow after tax, EBITDA, and BCF for the calculations of Enterprise value. Enterprise values calculated under these multiples are \$1,218,984 million \$1,371,924.9 million and \$1,306,114.1 million respectively. Their average enterprise value was calculated to be \$1,299,008 million. Enterprise value from income approach is greater than that of market approach.

Since the Clear Chanel Communications and Hispanic Group are not comparable, their multiples are removed in exhibit 8. This has drastically decreased the market average since both the companies had quite high multiples, especially Hispanic Group which was leading the market. This affected the stations which were up for sale. The new adjusted market multiples are 16.18 of BCF, 17.38 of EBITDA and 23.83 Of Cash Flow after tax. Their enterprise values are\$1,167,204 million, \$1,228,721 million, and \$113,121 million respectively. The average Enterprise value is \$1,169,682 which is less than the enterprise value calculated through income approach.

### Reconciliation of Income Method and Market Method

As shown through the calculations, Enterprise values are different when taking income and market approach. These values can however be reconciled if the average of both the values are taken. As per the reconciliation, the Enterprise Value of Radio One to acquire these 12 stations is calculated to be \$1,430,338.

### Evaluation of Cost Savings

The net value of the cost savings is computed for 10 years on the basis of the assumption that acquisition of these stations would decrease the overall cost of Radio One. Discounted at 13%, the net value for the savings is calculated to be \$89.01 million. The total enterprise value would increase to be \$1,430,427 million after adding the cost savings.

### Evaluation of Cash or Stock Offer

Stock offer involves, exchanging of company’s share for acquisition price. Whereas the cash offer involves payment of bid price through cash, which is generated through raising debt or the issuance of additional equity in market. The company can however raise more debt, as it has a low debt ratio, but this would result in burdening the company with interest payments.

Stock offer is a better option for the company as its share price has increased to \$97 from \$40. Furthermore, the company is trading at a multiple which is typically higher as compared to the other companies. Giving it a clear advantage if stock offer is chosen.

### Conclusion

As per the analysis conducted above, it is advisable for Radio one to acquire the 12 stations from Clear Channel Communication at maximum bid of \$1,430,427. Instead of paying through cash, the 12 stations must be acquired through offering stocks as the company has higher stock prices, which would give them an edge while having this acquisition.............

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