Report: CBS Radio Urged To Merge With Cumulus

Though CBS Corp. (CBS) CEO Les Moonves has talked up the value of radio stations and the free cash flow they provide to the New York media group, hedge fund Sandell Asset Management Corp. has lobbied the company to spin out the business and merge it with Cumulus Media Inc. (CMLS), according to a person familiar with the situation, according to The Deal.

The strategic fate of CBS's radio business comes up periodically in earnings calls and analyst notes. A Financial Times column recently noted hedge fund agitation for a merger with Cumulus.

In its pitch to Cumulus and CBS, the person familiar with the matter said, Sandell suggested that the groups pursue a reverse Morris Trust merger of their radio businesses. By spinning off the radio stations to shareholders, CBS would divest an asset with a low tax basis without incurring a large bill from the IRS. It could also collect a nearly $900 million dividend.

Cumulus would benefit from a union that would give it greater scale and reduced leverage. The proposed combination with CBS's stations would have $2.4 billion in sales, and a projected market cap of nearly $5 billion.

While a deal could create value, pressuring CBS into a move would be a tall order. Executive Chairman Sumner Redstone controls 79.6% of the shareholder vote.

CBS owns 117 radio stations, with more than three-quarters of them in the top 25 U.S. cities. In December, the company strengthened its holdings in Philadelphia and Miami through a station swap with Beasley Broadcast Group Inc.

While the radio business has lagged CBS's top line growth, it has 40% margins. "No muss, no fuss," the CBS chief executive said of radio's steady cash flow at a conference in December. Radio could be a hedge to the company's other lines of business should "Big Bang Theory" or the next big Showtime original falter.

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