CanWest radio purchase a bargain say advisers

Investors who accepted an offer this month for their RadioWorks shares may have sold too cheaply. KARYN SCHERER examines an independent report.

Canadian media company CanWest got a bargain when it bought 72 per cent of New Zealand's second-biggest radio company, says an independent report.

The report, commissioned by RadioWorks' board from investment advisers Grant Samuel & Associates and made public yesterday, confirms an initial estimate that the broadcaster is worth at least $9 million more than CanWest has so far been prepared to pay.

The Canadian company this month pounced on RadioWorks, formerly known as Radio Pacific, offering 825c a share.

Several big shareholders, including the TAB and chairman Derek Lowe, took the offer, which was 23 per cent higher than the company's previous closing price.

The Grant Samuel report says shareholders may have sold too cheaply. While the CanWest bid values the entire company at just under $100 million, Grant Samuel has estimated it is more likely to be worth between $108 million and $123 million - or at least 876c a share.

It has based its price on a multiple of between 14 and 22 times earnings.

The valuation assumes RadioWorks will report earnings before interest and tax for the year ending March 2000 of $9 million - almost three times the previous year's figure. It also estimates earnings before interest and tax will increase over the next year to $11.9 million, partly due to its recent acquisition of Radio Northland.

The Grant Samuel report says RadioWorks is the largest commercial radio operator in several provincial markets, including Northland, Waikato, Tauranga, Rotorua, Hawkes Bay and Taupo.

It also says the acquisition is the only remaining opportunity to acquire "significant critical mass" in New Zealand, and that the benefits for CanWest will be much greater if it launches a full takeover bid.

RadioWorks' board has said it believes it can boost revenue by at least $5 million by joining CanWest's More FM group with its own. The Grant Samuel report says up to $6.5 million of potential savings and extra revenue have been identified.

"The synergy prize is significant," it says.

RadioWorks has a "relatively low but increasing" share of the national advertising market.

As RadioWorks continues to gain market share, "its share of national advertising should increase, which in turn should lead to increased earnings."

While merging RadioWorks and the More FM group should strengthen CanWest's position, this could not be done until the company had acquired 100 per cent.

"While there are minority shareholders in RadioWorks the two companies will need to continue to operate independently so as not to compromise their respective positions, and [it is important] for RadioWorks shareholders not to erode value until, and if, a successful offer is made to acquire their shareholdings."

Shareholders refusing to sell include Steven Joyce and several other directors, who between them own 14 per cent.

RadioWorks' shares last traded at 800c each.