Investor Seeks to Revive Ailing Radio Programmer

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Billionare Alec Gores made his name betting on failed companies.

Case in point: selling educational software developer Learning Co. in 2003 for $60 million after buying it from Mattel for nothing but a share of future profits.

His play last week for a share of faltering national radio programmer Westwood One smacks of more of the same.

Gores Group announced a cash infusion of up to $100 million in the New York City-based syndicator, which has seen its share price shrivel to under $2 a share after topping $30 five years ago.

If the deal goes forward as planned, Westwood will invest the capital in new programming and operations with an eye toward increasing ad revenues and expanding into new media platforms such as online radio.

“This is a business that has deteriorated over the past few years,” said Ian Weingarten, managing director of the Gores Group. “We need better blocking and tackling at the operational level.”

The Westwood deal is just one of several that the Los Angeles-based private equity firm has completed recently as it invests a $1.3 billion fund that is seeking to acquire controlling interests in mature and growing businesses in technology, telecommunications, business services and industrial sectors.

Last month, Gores teamed up with Aquest Systems Corp. in a $298 million buyout proposal for Asyst Technologies, a Fremont-based semiconductor-equipment manufacturer.


Declining advertising

With the Westwood One deal, among the top priorities will be restructuring its existing relationship with CBS Radio, which owns an 18 percent stake in the radio syndicator. There’s also been management upheaval. Last month, Westwood One hired former Time Warner executive Thomas Beusse as its new CEO before the Gores deal was announced.

“CBS was basically in control of the company and it was not a big priority for them, so it has been without real leadership for some time,” Weingarten said.

Facing declining advertising revenue and strong competition, Westwood One needs the capital to boost its programming which is key toward increasing its commercial inventory, said John Blackledge, a senior analyst in equity research at J.P. Morgan.

Currently the company is so strapped for cash that it has not been able to invest enough in new programming. “Their debt levels are almost pushing up against covenants with banks, so an equity infusion will enable them to alleviate some of their credit issues and invest in the future of the company,” he said.

But turning around the troubled radio syndicator poses difficult challenges in a declining market. With the competition posed by the Internet, iPods and other media, radio has seen a general decline in audience and advertising revenue. “There has been a decline in radio audience (industry-wide) of two percent annually over the past 10 years,” Blackledge noted.

However, Gores Group remains relatively bullish on the medium, with Weingarten projecting radio advertising revenue to grow in the low single digits annually.

“We don’t think the radio industry is going away,” he said. “With the music portion of the industry being displaced by iPods and media players, the operators of radio stations actually need more programming. So in some respects, things that impact the radio station operators actually benefit companies like Westwood One that provide content.”

Under the agreement, Gores Radio Holdings LLC will purchase $12.5 million in common stock, according to a prospectus filed with the Securities and Exchange Commission.

Westwood One has an option to sell Gores another $12.5 million in common shares as well as an additional $50 million to $75 million in preferred stock and warrants. If Gores acquires the preferred stock, it would gain three seats on the eleven-member board of Westwood One.

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