Tuesday, February 12, 2008

ClearChannel for Cowards...

 ClearChannel for Cowards...

Right off the bat, I don't like ClearChannel, they seem to ruin every radio station. That being said, they can do whatever they want since Sirius/XM is the only real radio competition and I'm too cheap to pay (for now, anyway). CCU is currently involved in an LBO that appears to be on the rocks. The stock is trading below $30, in spite of the LBO bid at $39.25 (>33% higher).  The LBO bid is ridiculous and values a radio company at 13x EBITDA, which is about where recent station-sales have been executed at.

I think a more reasonable multiple for a monopoly provider is closer to 8-9x Ebitda, which is way below any historical trading level for this company. The last time it traded at $20/share was in the recession of 2002 (its debt was $2.2Bln more than current levels) and before that, you have to go back to 1996 when it was much smaller.  This company should generate around $2Bln Ebitda, which puts valuation around $16-18Bln EV. Minus $7Bln debt=$9-11Bln market cap/500 mln shares= $18-22/share.    

I am not willing to buy the stock at $29 on the hopes an overpriced acquisition goes through. However, I am willing to sell one-month puts at $20 for $.40 (2% absolute yield b/f commissions) on the notion that the stock will be a decent buy if hell-freezes-over and the share price drops 30+% within the next month. I do not view this as highly likely, although I do expect weakness when the company reports earnings on February 14th.  If you are a little bit braver, you can sell $22.50 puts for $.90 (4% absolute yield).  I have only done this on a couple contracts per account, but its an interesting idea and arb play.

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