I thought about ETM lately and one thing that disturbed me was the recent purchase amounting to 9 million dollars that occurred in the first quarter this year.
Considering the "stellar" track record this company has in purchases and considering it had not purchased a single station for almost 3.5 years, I thought I should put some more juice into this purchase.
As I expected, information was not abundant. Nothing, absolutely nothing was mentioned in the company's 10-Q reports. I then reverted to the 8-K press releases that accompanied the 10-Q.
In this press release you can see that the purchase is mentioned. Nice, now we know where did these 9 million dollars go: to buy 98.5 K-FOX in San-Jose from Clear Channel Communications. A short research will show that this is a well known station with 20 years of history, something like Galgalatz in Israel, but does it justify the lucrative price? Was it a smart purchase?
I dug the internet long and wide and could not find a single number that shows any financial number regarding this station. Not revenue, pricing, nothing. Not even in Clear Channel reports itself. What's even more annoying is that the company did not supply shareholders with information about it to judge for themselves if the company's moves are wise or not.
As I was considering turning to emails to company's management, I thought of a nice solution: ETM reports its covenants compliance calculation – and in the calculation we can see a pro-forma estimation of this station operating income ! Yey ! Details Ladies and Gentlemen, details. In the covenant reports published since the purchase: First quarter and Second quarter, we can see that, pro-forma, if the station would have been present at ETM's portfolio for a year, it would have generated operating income between 1.875 million dollars and 1.344 million dollars.
For a 9 millions dollar investment, we get a pre-tax yield between 20.83% and 14.93%, not bad. So, wouldn't ETM be better off by using these 9 million to repay its debt? Lets see: ETM's debt bears about 3.4% interest per year. Repaying it will yield 3.4% a year, pre-tax, by saving interest payment on these 9 million dollars, or about 306K dollars, pre-tax. On the other hand, buying KFOX (wiki) will yield around 15% or over 1.3 million dollars pre-tax, given the numbers above.
Considering the numbers, this was a smart purchase.