Executive Summary
Radio One Corp. is the largest radio group targeting African-Americans in the country, and it’s got an excellent record by acquiring underperforming radio stations and turning them around. It’s contemplating whether to buy a significant amount of 21 radio stations (including 12 established urban stations in the top 50 markets and 9 stations from other companies) to be divested by one of the nation’s biggest owner of radio stations, Clear Channel, due to its merge with the other biggest owner, AMFM.
Radio One would benefit from the acquisition in the sense that its size would be doubled and its national platform be built, its revenue increase significantly, and having the possibility to go through planned expansion into …show more content…

Discounted value of Free Cash Flow from 2001 to 2004: 232,793,780$ with the WACC calculated above.
See appendix 1.2 for the calculation.
To sum up, we have a final valuation of 1,228,048,700$ by using the DCF model.
The valuation is reasonable in the sense that we have given appropriate assumptions. However, we don’t know the predicted capital structure and the market value of equity, which are supposed to be used to make a more accurate valuation.
Also, it’s not yet clear how much working capital would be required for the acquisition and growth rate variation can affect valuation significantly. Lastly, we have to know how much the acquisition would affect bond rating, as the company would use more debt and rating might be downgraded.

3) What price should Radio One offer based on transaction and trading multiple analysis?
Transaction multiple analysis:
We can get a relative price for the 21 stations by looking at the effect of transactions on comparable companies based on criteria such as industry, size, geography, diversification and then calculating an average price multiple.
In the case of Radio One only two transactions are mentioned. This sample is insufficient but can be used to confirm the results of other valuation analysis. Infinity Broadcasting acquired 18 stations from Clear Channel by paying $1.4 billion or about 21.5 x 2000 BCF. Cox Radio also acquired 7 of the stations and paid about