Chancellor Media Is Considering Sale

After a three-year buying binge that created the nation’s largest radio station group, Chancellor Media Corp. said Wednesday that it is considering a sale of all or part of the company.

The Dallas-based company, which is 25% owned by investment firm Hicks, Muse, Tate & Furst, said it hired Wall Street advisor BT Alex. Brown Inc. to review strategic options, including the sale, merger or consolidation of one or more of its businesses, which include radio and television stations and outdoor advertising assets.

Analysts estimated that a sale could bring $16 billion or more, not counting the $9 billion in debt Chancellor will have after completing its recent $4-billion purchase of Capstar Broadcasting.

Jessica Reif Cohen, an analyst at Merrill Lynch, said Clear Channel Communications Inc., the nation’s third-largest radio owner after CBS, is the most obvious candidate to buy the entire company, though it would be forced to divest radio stations in 15 of the top 50 markets to win antitrust approval of the transaction.

Chancellor said the move is designed to address the disparity between its stock price and those of its closest competitors, such as Infinity Broadcasting and Clear Channel. Chancellor is trading at a multiple of 16.5 times earnings, contrasted with Infinity’s 22 multiple.

News of the potential sale drove up Chancellor’s stock more than $9.19, to close at $54.75 on Nasdaq.

Media executives and investors said Chancellor has traded at a discount to the industry because of its shaky balance sheet and uncertain outlook. In addition to being highly leveraged, it has routinely overpaid for radio properties, many analysts believe, spending at levels that current industry growth rates cannot sustain.

While media stocks held up relatively well during the market turmoil last year that was fueled by the Asian crisis and worries of a recession here, Chancellor shares took a beating, dropping below $20, because of worries on Wall Street about its ability to service debt if the economy slowed.

The company has angered many radio station buyers by aggressively bidding up prices.

Jeffrey Marcus, chief executive of Chancellor, said Wall Street should not be punishing the company for its leverage because of its record in using its cash to pay down debt.

The move Wednesday is a radical reversal in directions. When Chancellor Chairman Tom Hicks began buying major radio companies in 1997 and then bought Lin Television last year, sources close to the investor said he envisioned building a major media empire and even had designs on a broadcast network.

The company has been a major force, along with CBS, in consolidating the radio industry. Through a series of acquisitions, Chancellor has grown from 11 stations in 1995 to 465 today, including Capstar’s group.

By amassing multiple stations in the nation’s top 50 markets, Chancellor and CBS have been able to cut costs, bundle bigger packages for advertisers and sell more efficiently. With each of the companies controlling more than a third of the radio advertising spending in certain markets, they have been able to raise rates steadily.

But radio analysts say Chancellor’s attempt to apply the strategy in smaller cities, through the acquisition of Capstar, is flawed. Advertisers in those markets are more price-sensitive and apt to turn to newspapers when radio rates go up.