Rauner and the Loop

I found this little tidbit in today's Tom Taylor column fascinating. Details about the agreement between Merlin Media (still technically the owners of the Loop), and Cumulus (the people currently running the Loop). Never realized that current Illinois Governor Bruce Rauner was involved...

Here’s what Cumulus is paying to LMA and eventually buy Chicago’s WKQX and The Loop. We not only learn the monthly LMA fees, we discover that Cumulus can run Merlin Media’s alternative rock WKQX (101.1) and classic rock “Loop” WLUP (97.9) all the way through October 2017 without actually buying them. That’s equivalent to renting a house instead of making a more expensive all-cash mortgage payment upfront, and it favors Cumulus. Here are the terms – Cumulus started the LMA with Merlin (backed by Chicago-based private equity fund GCTR) in early January, and for this first year of the LMA, it pays $300,000 a month. That nut rises to $400,000 next year, $500,000 in year three of the deal and $600,000 in year four (2017). Cumulus gets to keep the operating profits from those stations, and CEO Lew Dickey indicates he’s happy with the results so far. What if Cumulus chooses to buy outright? There are several scenarios, but it would be paying something like $70 million (through October 4, 2017) or $71 million (for the ten days after that, at Merlin’s option). However, Cumulus would get credit for all the LMA fees, which are going to be substantial – potentially close to $20 million, if Cumulus runs the string out to October 2017. By that date, the actual purchase price would be around $50 million or so. And at that point, Merlin has the legal right to require Cumulus to buy the stations. (Note that former GTCR principal Bruce Rauner, the “R” in the company name, has a new job – governor of Illinois.)