Liberty Media Planning To Buy Stake In iHeartMedia

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Liberty Media is planning to take a stake in iHeartMedia as soon as the radio company emerges from Chapter 11 bankruptcy, according to a report Tuesday. On Monday creditors approved a plan to cut iHeartMedia’s debt by a two-thirds. The New York Post was the first to report Liberty’s plans. 

iHeartMedia is a classic tale of mistiming. The company defaulted on $20 billion of debt from a leveraged buyout by private equity firms Bain Capital and Thomas H Lee Partners in 2008. Before the Great Recession, money was readily available and broadcast radio business hadn’t yet been affected by online competitors such as Pandora and Spotify. Too much optimism was a dangerous complement to a mountain of debt. On Monday iHeart announced over 90 percent of votes were cast in favor of the restructure plan. The company’s creditors own the shares and will seek to get their investments back when iHeart goes public. The Post reported that iHeartMedia will enter the public market in February. 

It’s not that iHeartMedia can’t make money; its revenue has remained at or near $6.2 million the last five years. Operating income has usually been a healthy $1 billion except for $1.5 billion in 2016. The problem is the interest required to service the debt used to acquire the company. In 2017, interest expense of $1.87 billion given an otherwise profitable company deep deficits. Bankruptcy and an ordered restructuring were the best options for getting the company out from under its debt and toward financial stability. 

Liberty Media chief John Malone, a shrewd dealmaker with a track record of well-timed investments, previously showed interest in iHeartMedia and offered $1.16 billion for 40 percent of the company in June. Neither iHeartMedia nor its creditors believed the offer was worth pursuing, according to an iHeartMedia statement, and Malone promptly pulled the offer. However, Liberty did manage to acquire $660 million of iHeartMedia’s debt, according to its latest investor presentation. 

Ownership in iHeartMedia would give Liberty a unique, vertically integrated media and entertainment company that spans three levels of music broadcasting: airwaves, satellite, and Internet. Liberty owns 71 percent of incredibly profitable satellite radio company SiriusXM Radio. In February SiriusXM will complete its acquisition of money-losing Pandora, the music streaming company with a popular Internet radio business and a small but growing on-demand streaming product; SiriusXM invested $480 million in Pandora in 2017 for a 19-percent stake. Ownership of iHeartMedia would give Liberty an unrivaled presence in United States music broadcasting. 

Liberty also owns 27 percent of Live Nation, a global concert promoter and ticketing company with over $10 billion annual revenue. As things stand now, Liberty doesn’t actively integrate its entertainment properties. For example, in theory, SiriusXM could help promote Live Nation concerts. In returns, Live Nation could provide SiriusXM with live broadcasts and recordings of concerts. The same theory would apply to iHeartRadio and Pandora. Liberty also owns professional baseball team Atlanta Braves and its stadium, and the Formula One Group. Companies in its portfolio include Tripadvisor, Expedia, Charter Communications, QVC, HSN, and music streaming service Saavn. 

Each company has its own, unique business with their own objectives and goals. But Liberty makes investments with synergy potential. For example, SiriusXM and Pandora can seek growth opportunities that wouldn’t be available without full ownership. When announcing the acquisition, the companies laid out growth opportunities, such as cross promotion and combined investments in technology and content, that weren’t available when SiriusXM owned just a minority stake.