Today, the Chicago PE firm agreed to buy a majority stake in three radio stations from Emmis Communications. Two are located in Chicago–WLUP-FM (The LOOP) and WKQX-FM (Q101)–while another, WRXP-FM, is in New York. The LOOP is classic rock, while Q101 and WKQX focus on alternative rock (Merlin Media is the entity formed by GTCR to buy the stations).
GTCR has agreed to pay Emmis between $110 million to $130 million cash at the close of the deal. Emmis will also receive preferred stock valued at $30 million to $50 million. The company will retain minority ownership between 20% to 35%, says Ryan Hornaday, Emmis’s treasurer.
The size of Emmis’s minority stake follows the percentage of cash the company takes, Hornaday says. If Emmis elects the lowest cash portion, it will receive the highest of preferred stock and common ownership. For example, if the company chooses to accept $110 million, it will get $50 million in preferred stock and a 35% stake, Hornaday says. If Emmis receives $130 million, it will receive $30 million in preferred and a 20% stake. Emmis will also be able to appoint one of Merlin Media’s five board members, according to an SEC filing.
The deal, subject to FCC approval, is expected to be close sometime during the second half of this year.
The sale was not an auction, Hornaday says. “It was privately negotiated,” he says.
Emmis, a diversified media company mainly focused on radio, chose to sell the stations to reduce its debt. The company has $335 million in debt, Hornaday says.
With Merlin, GTCR will be making its first investment in radio. Because of this, the PE firm is teaming with Randy Michaels, the former Tribune CEO and a former executive of Clear Channel Radio.
Michaels resigned last year from the Tribune after reports of his “boorish conduct” surfaced. It is unclear what compensation he will receive.
GTCR typically invests in financial services & technology, healthcare and information services & tech. The PE firm’s investment in Merlin will come from its most recent pool, GTCR Fund X, which raised $3.25 billion earlier this year.
John Momtazee and Carlos Jimenez of Moelis & Co. advised Emmis on the sale. GTCR did not use an outside financial advisor.
Calls to GTCR were not returned.