Business Transactions: Sale of 13 Radio Broadcasting Stations

Children's Broadcasting Corporation
5501 Excelsior Boulevard
Minneapolis, MN
Ticker: AAHS

In general, the market value of individual radio stations is expressed as a multiple of their cash flow or net earnings. However, when a radio station has negative cash flow, it tends to retain a significant value, called "Stick" value. "Stick" value is the value of a radio station's tower, market placement, and broadcasting license which gives it the right to broadcast a signal at an assigned frequency from a designated height. "Stick" value is an asset value and accounts for no business value, goodwill, or residual value. Even the most unprofitable radio stations retain their "Stick" values, which constitute a floor value for the station.

An example of "Stick" value can be seen in the recent asset and license sale of Children's Broadcasting. Children's Broadcasting was incorporated in Minnesota on November 21, 1991. From 1991 through approximately 1998, the company acquired radio stations throughout the United States providing children's format radio. As of 1998, the company had approximately 13 radio stations. In January 1998, the subject company sold all its radio stations and programming assets to Radio Utica, Catholic Radio Network, Salem Communications, and 1090 Investments for $70.65 million.

The sale of the radio station was at a gross price to revenue of 12.0 and a net price to revenue of 6.9. Despite the continued and significant losses, the net purchase price was a very high multiple of revenue, indicating considerable value in the assets and license in a consolidating radio market; its "Stick" value.

Children's Broadcasting Corporation was a full-time national broadcaster of children's radio programming in the United States. The company developed, produced, and distributed programming that was entertaining and informative, and directed to the interests and radio listening patterns of pre-teenage children and their families. The company's AAHS World Radio format provided current events features. The programming originated at the company's flagship station, WWTC-AM of Minneapolis, Minnesota, and was distributed via satellite to a network of radio stations around the country.

Since its inception, the primary sources of the company's revenue had been from the sale of local advertising and air time and network revenue. A substantial portion of the company's local advertising revenue was derived from company-owned stations not broadcasting the AAHS World Radio format. These stations, which broadcast primarily family-oriented programming in the Houston, Kansas City, Milwaukee, and Minneapolis markets, were acquired by the company in 1994.

The company's growth strategy included the acquisition of radio broadcast licenses in the top 15 markets, thereby securing the network's presence and continuity in those key markets. At their peak of operation, they had 13 radio broadcast licenses. Children's Broadcasting Corporation is still operating today, however, with a different strategic venue.

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