Tensions have broken out between Global and iHeartMedia as the owner of the British radio and outdoor media group seeks regulatory permission to buy up to 49.99% of its bigger US audio counterpart.
Michael Tabor’s Global Media & Entertainment Investments (GMEI) has already bought an 8.7% stake, which it did at the end of January without telling iHeartMedia in advance.
Now iHeartMedia and GMEI have each written to the Federal Communications Commission, the US regulator, which must approve any foreign ownership above 5% for a radio broadcast licence holder.
iHeartMedia said in a petition that the FCC should give approval for GMEI to own a stake above 5% and potentially to increase the size of its stake because it would be in the “public interest” and encourage investment – but only up to 9.99%.
GMEI told the FCC in a follow-up letter that it was “frustrated” and “surprised”, because its lawyers had discussed its plan to seek to buy up to 49.99% with iHeartMedia’s lawyers in February and made clear to the US-listed company that its intentions were “not hostile” and it wanted to “co-operate and work together”, GMEI said.
Tabor’s son, Ashley Tabor-King, also had a phone call with iHeartMedia’s senior management, including chief executive Bob Pittman, in February to echo GMEI’s position.
As a result, “GMEI was frustrated to learn that iHeart’s advance approval request in the petition only requested approval for non-controlling voting and equity ownership interests of no greater than 9.99%,” GMEI said.
“GMEI also was surprised that the petition did not reference GMEI’s request to seek advance approval for a non-controlling interest not to exceed 49.99%, nor did the petition attempt to explain the basis for iHeart’s unilateral decision to limit the advance approval to 9.99% despite GMEI’s request.”
An 'inconsistency with the FCC’s foreign ownership rules', iHeart says
In iHeartMedia's legal filing to the FCC, America's biggest radio broadcaster with more than 850 stations reveals how it was caught by surprise when the owner of Global, the biggest UK commercial radio broadcaster, bought its 8.7% stake for $117.5m “wholly without iHeart’s knowledge or control”.
The US company said it only learned about the share purchase at the start of February, after Tabor’s investment vehicle, Honeycomb Investments, made a stock market filing.
“Because iHeart had no advance knowledge of GMEI’s intention to acquire stock in excess of 5% of iHeart’s voting and equity, iHeart had no ability to prevent the acquisition of its publicly traded stock above the amount permitted under the FCC’s rules without [seeking] a declaratory ruling [from the regulator],” iHeartMedia said.
“GMEI’s independent investment decision” to buy its 8.7% stake “caused” an “inconsistency with the FCC’s foreign ownership rules”, according to iHeartMedia.
A GMEI spokesperson declined to comment but it has made clear it believes it has followed the regulatory process. Its plan to seek approval to buy up to 49.99% of iHeartMedia is “fully compliant with the FCC’s rules”, GMEI said in its letter to the FCC.
'Not aware of any dispute,' Global owner says
iHeartMedia passed a resolution last year at the start of the pandemic that means any shareholder that wants to own 10% or more needs approval from iHeartMedia’s board.
However, GMEI said winning permission from the FCC to increase its stake up to 49.99% under foreign ownership rules is a different matter and can be considered by the regulator now – because that is separate from winning the approval of iHeart’s board.
GMEI added in its letter to the FCC that it “is not aware of any dispute or disagreement with iHeart” but added that, hypothetically, “any private dispute that may surface” should not affect the FCC’s ability to give advance approval for a share purchase of up to 49.99%.
The iHeartMedia spokesperson said: “We are aware of the recent update to the Global Media & Entertainment 13D filing [to the US stock market about wanting permission to increase its stake to up to 49.99%] and, as always, iHeartMedia will continue to comply with all FCC foreign ownership regulations, including those related to the Global investment.”
iHeartMedia declined further comment, including about whether there are tensions with GMEI.
A spokesperson for GMEI also declined to comment.
The FCC did not immediately respond to a request for comment.
Global has been increasingly acquisitive
Advertising industry watchers are following the saga with growing interest given the Tabors’ M&A record.
iHeartMedia’s share price has risen from $14 at the start of February to $19, giving it a stock market value of more than $2.6bn.
Steve Cahall, analyst at Wells Fargo bank, said in a research note: “Investors have asked us whether Global could be making a two-step approach to eventually control iHeartMedia. It’s unclear if the FCC would grant control to a foreign company.”
The Tabors set up Global in 2007 and expanded it through acquisition, notably by buying GCap, the owner of Capital Radio, for £375m in 2008 and taking the listed company private after months of negotiation.
More recently, Global made a triple acquisition in UK outdoor, buying Primesight, Outdoor Plus and Exterion Media in 2018, in an audacious expansion move.
Buying into iHeartMedia could be Global’s most ambitious move yet.
iHeartMedia annual revenues of about $3.68bn prior to the pandemic were roughly three times the size of Global Media & Entertainment, the UK parent company of Global, which had £825m of revenues in the year to March 2020.
iHeartMedia has overcome historic debt problems after restructuring its finances and received authorisation from the FCC last year that allows the company to increase “foreign ownership” to up to 100% of its shares.
But the rules mean individual investors still need FCC approval for significant shareholdings.
When GMEI first invested in iHeartMedia via Honeycomb, it said it was “pleased to be able to have acquired this stake in a sector that it knows well”.
One industry observer said the two companies, including Tabor and Pittman, already knew each other.