In a report sent to investors on Saturday, 24 hours after the Entercom earnings call, Wells Fargo analyst Marci Ryvicker wrote a report headlined: “ETM is unfortunately messy.” She notes that the Entercom stock price has dropped 35% year-to-date and says the market “clearly has concerns” about the merger with CBS. And she gives three reasons for those concerns.
The first concerns the overall revenue trajectory of the radio industry. The second is the revenue and EBITDA trajectory for the combined company. And, the third concerns is the potential volatility after the deal closes should CBS shareholders sell the newly inherited ETM stock. “We cannot predict what CBS holders will do, so there could be merit there. And we know that radio industry revenue is quite cyclical, so macro is important.”
Ryvicker, who has always had confidence in David Field, is not wavering on that here either. “We believe CEO David Field will be able to manage these assets and outperform the space. Unfortunately, this particular print was a little too messy to provide the market with much comfort – expenses are higher than expected and Q3 is pacing down. BUT this mgmt. team does tend to come ahead of its pacing commentary; and we understand that expenses are popping up as ETM prepares to both swallow and fix a company that is more than double its own size.
Ryvicker says the merger is likely to go through regardless of the Entercom stock price. “We’ve been asked if there is a stop-gap to this deal should ETM’s stock fall below a certain price. As we understand it, the answer is no. But either Board can pull out..for a $30MM fee.”
Ryvicker also said she likes that CEO David Field did not hesitate to shut down any interest in purchasing Townsquare, which he was asked about on his earnings call and answered with one word, “No.”
