Liberty Media Officially Withdraws $1.16B Offer for iHM

Liberty Media, the parent company of Sirius XM, has formally withdrawn its offer to acquire 40% of iHeartMedia, the bankrupt radio conglomerate, for $1.16 billion.

Variety reports the announcement came as iHeartMedia informed the bankruptcy court on Thursday that neither the company nor its senior creditors thought the transaction was worth pursuing. IHeartMedia did not rule out some other arrangement, noting that combining the businesses could create $500 million in operational synergies.

But it cited “pro forma corporate governance issues, the ability to achieve operational synergies in a minority interest structure, and purchase price” as reasons for rejecting the deal.

In a statement on Friday, however, Liberty said it had dropped out “after reviewing results which were below expectations and negatively impacted our initial estimates of value.”

“We remain open to future discussions as iHeart proceeds with its reorganization,” the company said.

In its statement to the court, iHeart said it is also open to a continuing dialogue with Liberty, and with other potential partners.

IHeartMedia declared bankruptcy in March, bowing to the burden of $20 billion in debt. The company holds more than 850 radio stations, making it by far the nation’s largest radio company.

In court filings last week, iHM indicated that some form of combination with Liberty could generate $500 million in synergies annually, but despite that, rejected the current proposal. Speculation about the division of those synergistic savings is one main reason for the failure of this initial offer, according to seekingalpha.com:

"From a Liberty perspective, time is on its side. The company does not have to rush into anything as long as no other suitors step up with an offer. Despite some interesting merger activity in the media and telecom space, no significant player seems to want to throw their hat into the ring in a public manner. Despite the silence on the subject, one can imagine that there are many conversations happening when over $20 billion in debt that is about to be erased is on the table. One clear advantage Liberty has in this process is its vast experience in the media space. Some creditors may actually view Liberty as the best choice to partner with. 

"Liberty Media controls 72% of SiriusXM stock, and by extension, SiriusXM controls 20% of Pandora stock. Liberty also has a substantial stake in Live Nation (LYV). It does not take much imagination to see what type of powerhouse could exist by adding iHeart's 850 terrestrial radio stations and streaming service to the mix. 

"Liberty Media is very calculated in what it does and drives a very hard bargain. That has made many Liberty Media investors a lot of money over the years."

Meanwhile, the Wall Street Journal reports  iHeartMedia still believes a merger with Liberty is a good idea. “The Debtors believe that there is the potential for a transaction with Liberty that would create substantial value for both Liberty and the Debtors,” the company said in court papers.

Liberty Chief Executive Officer Greg Maffei recently expressed similar sentiments in the company’s latest earnings call. ”I think at some point they are going to re-engage with us, and if the price is attractive, as I said, we would be interested,” Mr. Maffei said during the company’s first-quarter earnings call in May.

Although Liberty has formally withdrawn its offer, a deal between the two could still come together once iHeartMedia exits bankruptcy, said Lance Vitanza, analyst at Cowen and Co.