Exhibit (c)(iv)
Strictly
Private and Confidential
Project
Hawkeye
Presentation
to the Special Committee of the Board of Directors
May
7, 2022
Strictly
Private and Confidential
Table
of Contents
| |
|
|
| I. |
Situation
Overview |
3 |
| |
|
|
| II. |
Overview of Projections |
13 |
| |
|
|
| III. |
Preliminary Financial
Analysis Summary |
19 |
| |
|
|
| |
|
|
| Appendices |
|
| |
|
| A. |
Preliminary Discounted
Cash Flow Analysis |
24 |
| |
|
|
| B. |
Preliminary Selected
Publicly Traded Companies Analysis |
31 |
| |
|
|
| C. |
Preliminary Selected
Precedent Transactions Analysis |
44 |
| |
|
|
| D. |
WACC Analysis |
51 |
| |
|
|
| E. |
Pelican Sale Supplemental
Materials |
57 |
| |
|
|
| F. |
Other Information |
67 |
Strictly
Private and Confidential
Disclaimer
This
presentation has been prepared by Moelis & Company LLC (“Moelis”) for exclusive use by the Special Committee of
the Board of Directors of Hawkeye in considering the transaction described herein based on information provided by Hawkeye and
upon information from third party sources. Moelis has not assumed any responsibility for independently verifying the accuracy
of such information, and disclaims any liability with respect to the information herein. In this presentation, Moelis, at Hawkeye‘s
direction, has used certain projections, forecasts or other forward-looking statements with respect to Hawkeye and/or other parties
involved in the transaction which were provided to Moelis by Hawkeye and / or such other parties and which Moelis has assumed,
at Hawkeye’s direction, were prepared based on the best available estimates and judgments of the management of Hawkeye and/or
such other parties as to the future performance of Hawkeye and/or such other parties. This presentation is provided as of the
date hereof and Moelis assumes no obligation to update it or correct any information herein.
This
presentation is solely for informational purposes. This presentation is not intended to provide the sole basis for any decision
on any transaction and is not a recommendation with respect to any transaction. The recipient should make its own independent
business decision based on all other information, advice and the recipient’s own judgment. This presentation is not an offer
to sell or a solicitation of an offer to buy any business, security, option, commodity, future, loan or currency. It is not a
commitment to underwrite any security, to loan any funds or to make any investment. Moelis does not offer tax, accounting, actuarial
or legal advice. Absent Moelis’ prior written consent, this material, whether in whole or in part, may not be copied, photocopied,
or duplicated in any form by any means, or redistributed.
Moelis
and its related investment banking entities provide mergers and acquisitions, recapitalization, restructuring, corporate finance
and other financial advisory services to clients. Certain affiliates of Moelis are engaged in asset management and other activities
for their own account and otherwise. Personnel of Moelis or such affiliates may make statements or provide advice that is contrary
to information included in this material. The proprietary interests of Moelis or its affiliates may conflict with the recipient’s
or Hawkeye’s interests. In addition, Moelis and its affiliates and their personnel may from time to time have positions
in or effect transactions in securities referred to in this material (or derivatives of such securities), or serve as a director
of companies referred to in this presentation. Moelis and its affiliates may have advised, may seek to advise and may in the future
advise or invest in companies referred to in this presentation.
Strictly
Private and Confidential
I.
Situation Overview
Strictly
Private and Confidential
Timeline
of Key Events
| ■ | On
January 8, Sparrow Capital Partners (“Sparrow”) submitted a non-binding indication
of interest (“Indicative Offer”) to acquire all of the common shares of Hawkeye
at an offer price of $8 per share |
| — | Gato
Investments LP owns ~41% of Hawkeye’s shares and controls ~75% of the voting power
of Hawkeye1 |
| ■ | On
January 14, Moelis met with the Special Committee and was subsequently asked to represent
the Special Committee as its financial advisor in connection with evaluating the Sparrow
Indicative Offer and other potential strategic alternatives |
| ■ | In
late January, at the request of the Special Committee, Moelis reached out to Sparrow
to discuss the Indicative Offer and during this call Sparrow verbally provided additional
details about its proposal including details around its plans for the Company to sell
Pelican to Talon in connection with its Indicative Offer |
| ■ | On
or about February 25, Latham & Watkins, counsel to Sparrow, held a call with Davis
Polk, counsel to the Special Committee, during which Latham & Watkins raised the
possibility of a sale of Pelican to Talon ahead of the closing of the acquisition of
the entire Company |
| ■ | On
March 3, Sparrow verbally indicated that the price it was willing to pay was now less
than $8, and referenced $7.75 as a potential revised offer price |
| ■ | On
March 7, the Special Committee held a meeting with Davis Polk and Moelis. Moelis presented
a preliminary, illustrative financial analysis based on the revised management forecast
and discussed various potential counterproposals |
| ■ | On
March 8, Moelis communicated the Special Committee’s counterproposal to Sparrow.
Sparrow communicated that the Pelican deal was only available as part of the take private |
| ■ | On
March 10, the Company held a regularly scheduled Board Meeting. Following the Board Meeting,
representatives of Sparrow met with the Special Committee to discuss the key terms of
Sparrow’s offer |
| ■ | On
March 11, the Special Committee, Moelis and Davis Polk held a meeting during which the
Special Committee informed Moelis and Davis Polk of the conversations that occurred following
the March 10 Board meeting, discussed at a high level some of their views on recent business
performance and near-term forecasted performance, and directed Moelis to continue discussions
with Sparrow on a potential deal at $8.00 per share |
| ■ | On
March 14, Moelis and Sparrow held a discussion during which Sparrow indicated openness
to acquiring Hawkeye at $8.00 per share, including a go-shop process with a binding commitment
to support a superior offer. The Special Committee, Moelis and Davis Polk held a call
to discuss the latest developments, during which the Special Committee directed Moelis
and Davis Polk to expedite the completion of diligence and the drafting of definitive
documents |
| ■ | Throughout
March and April, the Special Committee, Moelis and Davis Polk met on a regular basis
to discuss key transaction terms, the status of negotiations and other considerations
related to a potential transaction |
| ■ | On
April 21, Sparrow informed Moelis that it was lowering its bid to $7 per share because
of less favorable economic terms in the Pelican sale; Sparrow also referenced increased
financing costs and a more uncertain macroeconomic environment |
| ■ | On
April 24, April 27 and May 1, the Special Committee, Moelis and Davis Polk held meetings
during which the Special Committee discussed the latest terms of Sparrow’s offer,
and asked Moelis and Davis Polk to negotiate on certain key terms |
| ■ | On
May 5, the Special Committee, Moelis and Davis Polk met to review outstanding commercial
points. Moelis held a conversation with Sparrow and reiterated the Committee’s
request to expand the go-shop provision to cover the entire Company; however, Talon would
not agree to a go-shop covering Pelican |
| 1. | Gato
Investments L.P. (“Gato”) is an entity which holds approximately 15,740,000
shares of Hawkeye’s high vote Class B common stock. Sparrow also owns approximately
102,290 shares of Class A common stock. Sparrow is a limited partner of Gato and the
general partner of Gato is controlled by Peter M. Kern. Mr. Kern owns 650,000 additional
Class B shares and ~226,000 Class A shares |
Strictly
Private and Confidential
Summary
of Moelis Work
| ■ | January
14, 2022: Moelis presented a pitch to the Special Committee, including Moelis’
perspectives on potential strategic alternatives. Moelis sent the Special Committee a
disclosure letter outlining its relationships with certain parties that could be involved
in a potential transaction; shortly thereafter, the Special Committee verbally engaged
Moelis as a financial advisor and informed Moelis that Sparrow had made a proposal to
take the Company private |
| ■ | January
24, 2022: Moelis, Davis Polk and the Special Committee held a meeting, during which
Moelis presented an overview of key work streams (including Moelis’ diligence requests),
key process deliverables, select strategic alternatives and the appropriate response
to Sparrow |
| ■ | February
28, 2022: Moelis, Davis Polk and the Special Committee held a meeting, during which
Moelis presented a process update |
| ■ | March
2, 2022: Moelis, Davis Polk and the Special Committee held a meeting, during which
Moelis presented a process update. Moelis and the Special Committee executed an engagement
letter |
| ■ | March
4, 2022: Following Hawkeye Management’s discussion of its financial projections
with the Special Committee, Moelis, Davis Polk and the Special Committee held a meeting
during which Moelis presented a process update. |
| ■ | March
7, 2022: Moelis, Davis Polk and the Special Committee held a meeting, during which
Moelis presented a preliminary draft of its financial analysis and discussed various
potential counterproposals |
| ■ | March
9, 2022: Moelis, Davis Polk and the Special Committee held a meeting, during which
Moelis updated the Special Committee on negotiations with Sparrow |
| ■ | March
29, 2022: The Special Committee, Moelis and Davis Polk held a meeting to discuss
process and review the latest draft of the merger agreement |
| ■ | April
4, 2022: Moelis held a call with Counterparty A during which Counterparty A expressed
its continued interest in a potential transaction with Pelican and discussed next steps |
| ■ | April
20, 2022: Moelis, the Special Committee and Davis Polk held a meeting, during which
Moelis discussed potential go-shop participants and go-shop process considerations |
| ■ | April
24, 2022: Moelis, the Special Committee and Davis Polk held a meeting, during which
Moelis discussed the progress of Counterparty A’s diligence and presented the changes
in Talon’s offer to acquire Pelican |
| ■ | May
2, 2022: Moelis received a letter from a representative of Counterparty B inquiring
about an opportunity to acquire Hawkeye |
| ■ | May
4, 2022: Moelis held a call with a representative from Counterparty B to discuss
Counterparty B's potential interest in a transaction. Given lack of financing and views
on valuation, amongst other considerations, Moelis and Davis Polk advised the Special
Committee that it was not an actionable bid at present |
| ■ | May
4, 2022: Moelis held a call with Counterparty A during which Counterparty A said
that while they appreciated the opportunity to meet with management and diligence the
asset, they unfortunately were not able to confirm completion of business diligence and
would require approximately a month to determine if it was interested in acquiring Pelican |
Strictly
Private and Confidential
Basis
of Presentation and Limitation to Analyses
The
commentary below summarizes the information received by Moelis to date from Hawkeye and the primary limitations to our analyses
which inform the basis of our presentation
INFORMATION
RECEIVED FROM HAWKEYE
| ■ | Indicative
Proposal from Sparrow to acquire Hawkeye for $7.00 per share |
| ■ | Hawkeye
Management’s financial projections (the “LRP”) covering 2022E - 2026E
as well as a Hawkeye Management extrapolation (the “Extrapolation”) covering
2027E-2031E. The LRP included revenue, expense and cash flow detail for Pelican and Networks
separately |
| — | Moelis
held multiple discussions with Hawkeye Management regarding the LRP and the Extrapolation |
| — | Moelis
also received forecast KPIs for both the Networks and Pelican businesses |
| ■ | Key
business diligence information, including but not limited to a schedule of Pelican content
releases and KPI detail |
| ■ | Diligence
information on the Talon radio stations |
| ■ | Hawkeye
Management’s estimate of Hawkeye’s ability to utilize the NOLs Talon will
give to Hawkeye as part of the Pelican consideration |
| ■ | Hawkeye
estimated net debt and cash as of 3/31/2022 and shares outstanding (including a detailed
options schedule) as of 4/29/2022 |
| ■ | Materials
prepared by Hawkeye Management for the March 2022 Board of Directors meeting |
GENERAL
LIMITATIONS
| ■ | Contact
with management has been primarily with the Hawkeye CEO and CFO |
| ■ | Projected
tax rates are estimates provided by Hawkeye Management |
| ■ | No
detailed utilization schedule of Hawkeye’s tax attributes |
| ■ | No
projections (beyond 2022 budget) for the Talon radio stations were provided; Talon NOL
estimates are preliminary and limited support was provided to substantiate these attributes |
| ■ | Limited
discussions on the potential tax implications of the potential transaction structures |
| ■ | No
additional due diligence materials other than those noted above |
Strictly
Private and Confidential
Key
Terms of the Transactions
| ■ | If
the Special Committee decides to move forward, Hawkeye will sign two agreements: 1) the
sale of Pelican to Talon for certain consideration (“the Pelican Transaction”)
(see Appendix for additional information) and 2) the sale of Hawkeye to Sparrow for $7.00
per share (the “Hawkeye Transaction”) |
| ■ | See
below for a summary of key terms of the Transactions |
| |
|
|
| Purchase
Price per Share |
|
■
Hawkeye
common shareholders will receive $7.00 per share (all cash)
■
Includes
consideration received by the Company in the Pelican Transaction; the proceeds from which will be used to fund the $7.00
per share purchase price |
| Termination
Fees |
|
■
Company
Transaction Fee: $10.6mm; $5.7mm if the Company (i) enters into a definitive agreement
with a topping bidder within the 30-day go-shop period or (ii) the Company provides notice
to Sparrow that it has received a Superior Proposal within the 30-day go-shop period
and a definitive agreement with the topping bidder is signed within certain notice periods
■
Parent
Termination Fee: $15.6mm if Sparrow terminates the agreement under certain circumstances |
| Expense
Reimbursement |
|
■
If Disinterested
Shareholders do not approve the deal, and the Hawkeye Transaction is terminated, Hawkeye shall pay to Sparrow fees and expenses
of up to $4.375mm; Sparrow has a separate agreement with Talon to share a portion of these reimbursed expenses with Talon |
| Regulatory
Efforts |
|
■
Sparrow required
to use “reasonable best efforts” to take actions necessary to obtain regulatory approval |
| Disinterested
Shareholder Approval |
|
■
Before closing
the sale to Sparrow or the sale of Pelican to Talon, a majority of the voting power of shares held by Disinterested Shareholders
must approve the transaction. Disinterested Shareholders are defined as all shareholders other than Gato, any officer of the
Company, Sparrow, and affiliates and associates of the above. |
| Pelican
Transaction |
|
■
Concurrent
to signing the definitive agreement to sell Sparrow in the Hawkeye Transaction, Hawkeye
would also sign definitive documentation for the Pelican Transaction
■
Prior
or concurrent closing of the Pelican Transaction is a condition to closing the Hawkeye Transaction
■
There
is a scenario in which Hawkeye would close the Pelican Transaction but not close the Hawkeye Transaction: if the Disinterested
Shareholders approve the sale to Sparrow, but Sparrow does not close by July 31 for any reason including an inability
to secure financing, the Pelican Transaction would close |
| Go-Shop |
|
■
30-day
go-shop period
■
No
expense reimbursement for go-shop parties permitted
■
A
topping bidder would “step into the shoes” of Sparrow would be acquiring the Networks business and the consideration
Hawkeye will receive in the Pelican Transaction; a topping bidder would not be able to acquire Pelican
–
If
an unsolicited bid for Pelican was received prior to closing, shareholders would have the option of voting down the entire
transaction and negotiating with a third party
■
Sparrow
will enter into a voting agreement to vote in favor of a Superior Proposal
■
Any
information provided to potential bidders that has not previously provided to Sparrow must be shared with Sparrow
■
The Company
intends to conduct outreach to potential bidders, including both strategic parties and financial sponsors, following the
signing of the merger agreement |
Strictly
Private and Confidential
Analysis
at Various Prices
Sparrow
and Hawkeye are negotiating definitive documentation regarding an acquisition of Hawkeye for $7.00 per share
SUMMARY
PREMIA AND IMPLIED TEV AT VARIOUS PRICES
| ($
in millions; except per share data) |
|
|
Current
Price
(as of 05/06/22) |
|
Sparrow
Offer Price |
| |
|
|
|
|
|
| Share Price |
|
|
$3.77 |
|
|
$7.00 |
|
| |
|
|
|
|
|
|
|
| %
Premium to Current |
|
|
- |
|
|
86% |
|
| |
|
|
|
|
|
|
|
| Recent
Statistics |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
| 52
Week High (05/24/21) |
$14.04 |
|
(73%) |
|
|
(50%) |
|
| 52
Week Low (04/07/22) |
3.58 |
|
5% |
|
|
96% |
|
| |
|
|
|
|
|
|
|
| 10-Day
VWAP |
3.95 |
|
(4%) |
|
|
77% |
|
| 20-Day
VWAP |
4.09 |
|
(8%) |
|
|
71% |
|
| 30-Day
VWAP |
4.29 |
|
(12%) |
|
|
63% |
|
| 60-Day
VWAP |
4.91 |
|
(23%) |
|
|
43% |
|
| 90-Day
VWAP |
5.55 |
|
(32%) |
|
|
26% |
|
| 180-Day
VWAP |
8.08 |
|
(53%) |
|
|
(13%) |
|
| 270-Day
VWAP |
9.48 |
|
(60%) |
|
|
(26%) |
|
| 365-Day
VWAP |
9.98 |
|
(62%) |
|
|
(30%) |
|
| Diluted
Shares Out. (mm) |
|
|
40.401 |
|
|
40.424 |
|
| Implied
Market Capitalization |
|
|
$152 |
|
|
$283 |
|
| Plus:
Net Debt & Other (as of 03/31/22) |
|
|
193 |
|
|
193 |
|
| Implied
Enterprise Value |
|
|
$346 |
|
|
$476 |
|
| Note: |
52 Week High
and Low based on intraday share prices; diluted shares outstanding includes Class A, Class B shares and the impact of options
calculated using the Treasury Stock Method |
| Source: |
Company information,
Capital IQ as of 05/06/22 |
Strictly
Private and Confidential
Implied
Multiples on Networks + Radio
| |
|
|
Hawkeye
Perspective |
|
|
Sparrow
Perspective |
| |
|
|
|
|
|
|
|
|
|
| |
($
in millions) |
|
Current
Price as of
05/06/22 |
Sparrow
Offer |
|
|
Low |
Mid |
High |
| |
Share
Price Class A Shares |
|
$3.77 |
$7.00 |
|
|
$7.00 |
$7.00 |
$7.00 |
| |
(x)
Common shares outstanding |
|
20.680 |
20.704 |
|
|
20.704 |
20.704 |
20.704 |
| |
Share
Price Class B Shares |
|
$3.77 |
$7.00 |
|
|
$7.00 |
$7.00 |
$7.00 |
| |
(x)
Common shares outstanding |
|
19.720 |
19.720 |
|
|
19.720 |
19.720 |
19.720 |
| |
Implied
Equity Value |
|
$152.3 |
$283.0 |
|
|
$283.0 |
$283.0 |
$283.0 |
| |
(+)
Total Debt |
|
251.6 |
251.6 |
|
|
251.6 |
251.6 |
251.6 |
| |
(-)
Cash |
|
(37.3) |
(37.3) |
|
|
(37.3) |
(37.3) |
(37.3) |
| |
Net
Debt 1 |
|
$214.3 |
$214.3 |
|
|
$214.3 |
$214.3 |
$214.3 |
| |
(+)
Noncontrolling Interests |
|
-- |
-- |
|
|
-- |
-- |
-- |
| |
(+)
Post-tax Pension Obligation |
|
1.7 |
1.7 |
|
|
1.7 |
1.7 |
1.7 |
| |
(-)
Non-Core Assets 1 |
|
(22.7) |
(22.7) |
|
|
(22.7) |
(22.7) |
(22.7) |
| |
Implied
TEV |
|
$345.6 |
$476.2 |
|
|
$476.2 |
$476.2 |
$476.2 |
Pelican
Sale
Adjustments |
(-)
Cash Consideration |
|
-- |
-- |
|
|
(115.0) |
(115.0) |
(115.0) |
| (-)
Net Benefit from PR NOLs (PV) 2 |
|
-- |
-- |
|
|
-- |
(12.4) |
(24.4) |
| (+)
3 Years of Programming Fee (PV) 3 |
|
-- |
-- |
|
|
13.6 |
13.6 |
13.6 |
|
|
|
|
|
|
|
|
|
| (+)
Unreimbursed Content Payments / License Fee Forgiveness 4 |
-- |
-- |
|
|
7.3 |
7.3 |
7.3 |
| (+)
Incremental Puerto Rico Lease Obligations (PV) 5 |
-- |
-- |
|
|
22.8 |
20.0 |
15.0 |
| |
Adj.
Implied TEV |
|
$345.6 |
$476.2 |
|
|
$405.0 |
$389.7 |
$372.8 |
| |
|
|
|
|
|
|
|
|
|
| |
TEV
/ Adj. EBITDA (Post-SBC) incl. Pelican Losses |
Metric |
|
|
|
|
|
|
|
| |
LTM
3/31/22 |
$30.1 |
11.5x |
15.8x |
|
|
-- |
-- |
-- |
| |
2022E |
32.5 |
10.6x |
14.7x |
|
|
-- |
-- |
-- |
| |
2023E |
44.2 |
7.8x |
10.8x |
|
|
-- |
-- |
-- |
| |
Adj.
TEV / Adj. EBITDA (Post-SBC) excl. Pelican Losses |
|
|
|
PF
Metric 6 |
|
|
|
|
| |
LTM
3/31/22 |
$56.5 |
6.1x |
8.4x |
$63.0 |
|
6.4x |
6.2x |
5.9x |
| |
2022E |
57.5 |
6.0x |
8.3x |
64.3 |
|
6.3x |
6.1x |
5.8x |
| |
2023E |
56.8 |
6.1x |
8.4x |
63.7 |
|
6.4x |
6.1x |
5.9x |
| Source: |
Capital IQ as
of 05/06/22, Hawkeye Management, Talon, Sparrow and third party tax advisors |
| 1. | 3/31/22
estimates per Hawkeye Management |
| 2. | High
end reflects present value of net benefit of Puerto Rican NOLs received less the decrease
in foreign tax credits utilized given the decrease in forecasted taxes paid in Puerto
Rico - discounted at 8.0%; mid-point assumes 51% probability of utilization |
| 3. | Includes
three $5mm payments for programming fees from 2022 to 2024 |
| 4. | Reflects
upfront content funding payments that will not be reimbursed through working capital
and current payment that Talon owes Pelican for content that will be forgiven as a result
of the transaction |
| 5. | Low
end reflects present value of absorbed lease obligations as a result of the transaction,
mid and high end reflects illustrative potential to break the lease before 2059 when
the current contract expires - discounted at 8.0% |
| 6. | PF
Adj. EBITDA includes impact of PR radio acquisition (radio projections only go out to
2022, assumes 2023 EBITDA is flat from prior year) and is burdened by corporate overhead
allocated to Pelican. PF Adj. EBITDA with respect to Sparrow Perspective includes EBITDA
associated with Talon PR Radio assets |
Strictly
Private and Confidential
Share
Price Performance (Since 2020)
Hawkeye’s
share price is below pre-COVID levels and is down ~67% since it announced and subsequently terminated its proposed capital raise
in November 2021, and down ~50% since Sparrow’s confidential proposal
SHARE
PRICE PERFORMANCE (SINCE 2020) - HAWKEYE VS. SELECTED MEDIA COMPANIES
| Source: |
Capital IQ as of 05/06/2022 |
| 1. |
Includes Paramount, Discovery, AMC Networks and
Fox |
| 2. |
Includes Nexstar, TEGNA, Sinclair, Gray, Entravision
and E.W. Scripps calculated as a weighted average |
| 3. |
Includes Netflix, Sirius XM, Spotify, fubo TV,
Chicken Soup for the Soul Entertainment, Roku and CuriosityStream calculated as a simple average |
Strictly
Private and Confidential
Share
Price Performance in Context
| |
|
|
|
|
|
|
| |
 |
|
■
On
November 15, 2021, Hawkeye announced a common stock offering of 6mm shares
— Implies
gross proceeds of $68mm ($78mm if overallotment exercised) 1
■
On November
17, the Company announced the termination of its common stock offering due to market conditions, noting:
— The
offering was opportunistic and at then-current share price levels the offering was no longer attractive
— Hawkeye
had ample liquidity to fund operations and the necessary capital to continue to fund strategic growth initiatives, including
content and production for Pelican |
|
 |
| |
|
|
|
|
|
| |
 |
|
■ In January 2022, Netflix announced slower than expected
forecast subscriber growth, sending its shares down over
20%2
— Equity
research analysts have noted that Netflix’s performance may highlight that the U.S. SVOD market is reaching saturation
■ On
April 20, 2022, Netflix announced 200k of subscriber declines (excluding Russia) and forecasted significant declines for
the rest of the year
— Stock
fell 35% the next trading day
■ Netflix’s
recent subscription challenges has led to a rerating of the entire SVOD sector
— Since
Netflix announced Q1 and Q2 earnings, SVOD companies are down an average of 44% and 19% respectively 3 |
|
 |
| |
|
|
|
|
|
|
| Source: |
Capital IQ as of 05/06/2022 |
| 1. |
6mm Class A shares with an option for the underwriters
to purchase up to an additional 900k Class A shares. Based on Class A share price of $11.19 as of November 14, 2021 |
| 2. |
Reflects price decline between market close on
January 20 vs 21 (Netflix announced earnings on January 20) |
| 3. |
Reflects price decline between market close on
January 20 (Netflix Q1 earnings) and April 19 (Netflix Q2 earnings) vs. May 6 |
Strictly
Private and Confidential
Recent
Market Pressures on the SVOD Business Model
KEY RECENT
DEVELOPMENTS IN SVOD MARKET
|  | On
April 19, 2022, Netflix Announced Q1 Subscriber Loss and Guides to 2 Million Subscriber
Loss in Q2 2022 |
●
Netflix attributed its slowing growth outlook to several factors, including:
| – | Slower
growth in rate of adoption of connected TVs |
| – | In
addition to its 222 million paying households, Netflix is being shared with over 100 million additional households |
| – | Robust
competition from new streaming services that have launched and invested significantly in content |
| – | Sluggish
economic growth, inflation, Russian conflict and other macroeconomic factors |
| | | |
| ● | On
its latest earnings call, Netflix said that it would reduce content spending growth and
is exploring offering an ad-supported model |
|  | Warner
Bros Discovery Shuts Down CNN+ |
| ● | In
April 2022, following the completion of the Warner Bros Discovery merger, the new management
team of the Company shuttered CNN+, a news streaming service |
| ● | The
service was shut down barely a month after it was launched |
| ● | On
a recent earnings call, CEO David Zaslav stated that they would “not overspend
to drive subscriber growth” and CFO Gunnar
Wiedenfels stated he was reviewing and seeking to decrease content spend, noting that there were “a lot of chunky investments
that are lacking what I would view as a solid financial foundation and meeting the hurdle that I would like to see.” |
KEY
ANALYST COMMENTARY
NETFLIX
STOCK PRICE CHART (LAST 2 YEARS)
Source: Capital
IQ as of 5/06/22, Wall Street research
Strictly Private and
Confidential
| II. | Overview
of Projections
|
Strictly
Private and Confidential
Overview
of Projections
Financial Plan Overview & Assumptions
For
purposes of its analysis, Moelis relied on Hawkeye’s Management’s guidance and Hawkeye Management’s latest financial
projections (the “LRP” and the “Extrapolation”)
OVERVIEW |
▪
Hawkeye Management developed and provided both the LRP and Extrapolation to Moelis
▪
In July 2021, Hawkeye Management prepared and provided a set of projections to Talon; the key drivers
of the difference between the LRP and the July 2021 forecast are
— Greater
visibility for Pelican post-integration (Hawkeye had owned Pelican for only ~3 months at the time of the July 2021 forecast)
resulting in slower growth but higher margins
— 2021
performance across both business lines
— Feedback
from market participants following Hawkeye’s attempted equity offering in November 2021 |
NETWORKS |
▪
Networks’ revenue CAGR from 2022E – 2026E of 3% and from 2026E – 2031E of 1% is driven
by steady growth in advertising and subscriber revenue across segments
▪
EBITDA projected to remain steady through the projection period
— Steady
state of EBITDA through projection period is a result of incremental revenue growth across segments, offset by
increased operating costs and costs of revenue |
PELICAN |
▪
Pelican’s revenue CAGR from 2022E – 2026E of 23% and from 2026E – 2031E of 6% is
driven primarily by the continued subscriber acquisition and growth in ARPU
— Subscribers
projected to reach ~3.0mm in 2025 in-line with the high-end of public guidance
— Subscriber
projections are supported by expected efficiencies in subscriber acquisition and increased investment in content
— ARPU
increases over the projection period, primarily driven by a $1.00 price increase in May 2023
▪
EBITDA losses are generated in 2021 – 2024, and full-year profitability is projected to be achieved
in 2025, with margins reaching ~15% in 2026 and ~24% by 2031
— As
the subscriber base scales, operating leverage is established from returns on content and marketing investments
▪
Talon has announced plans to launch their global streaming service in H2 2022; a well-capitalized competitor
in Spanish-language streaming content could be a significant competitive threat to Pelican |
Source: Hawkeye Management
Strictly Private
and Confidential
Near Term Liquidity and Leverage
Assuming
the business performs in line with Hawkeye Management projections, Hawkeye available liquidity is projected to drop to $40.0mm
in Q2’22; pro forma net leverage is projected to be above the 5.0x threshold for the springing covenant in Q2
| ($
in mm) |
Q4'21A |
Q1'22B |
Q2'22B |
Q3'22B |
Q4'22B |
| Cash |
$49.5 |
$37.3 |
$29.5 |
$26.4 |
$37.7 |
| Availability
Under Revolver |
30.0 |
30.0 |
10.5 |
30.0 |
30.0 |
| Total Liquidity |
$79.5 |
$67.3 |
$40.0 |
$56.4 |
$67.7 |
| |
|
|
|
|
|
| Debt |
$252.3 |
$251.6 |
$251.0 |
$250.3 |
$249.6 |
| |
|
|
|
|
|
| LTM Adj. EBITDA (Core) |
$67.2 |
$64.8 |
$64.9 |
$65.9 |
$66.4 |
| LTM Adj. EBITDA (Pelican) |
($24.1) |
($29.6) |
($30.7) |
($29.8) |
($27.6) |
| LTM Adj. EBITDA (Consolidated) |
$43.1 |
$35.1 |
$34.2 |
$36.1 |
$38.9 |
| LTM Adj. EBITDA (Per
Financial Covenant) 1 |
$53.1 |
$44.8 |
$43.9 |
$46.0 |
$48.8 |
| |
|
|
|
|
|
Gross
Leverage |
5.9x |
7.2x |
7.3x |
6.9x |
6.4x |
| Net Leverage |
4.7x |
6.1x |
6.5x |
6.2x |
5.5x |
| Pro Forma Net Leverage
per Financial Covenant 1 |
3.8x |
4.8x |
5.0x |
4.9x |
4.3x |
Source: Hawkeye Management
| 1. | The Company’s Revolving
Facility has a springing net leverage covenant if the aggregate amount of revolving loans
and letter of credit exposure exceeds 35% of the aggregate commitments under the Revolving
Facility. Per the covenant, Pro Forma Net Leverage may not exceed 5.0x. The calculation
of Pro Forma Net Leverage per the Revolving Facility provides for the add-back of Pelican’s
EBITDA losses in an amount up to 15% of Hawkeye’s EBITDA before giving the effect
of Pelican’s losses, and permits cash netting of up to $60 million. The calculation
above assumes that when Pro Forma Net Leverage exceeds 5.0x, availability under the Revolving
Facility is limited to 35% of the aggregate commitments under the Revolving Facility
to avoid triggering the covenant. |
Strictly Private
and Confidential
Overview
of Projections
Networks Summary
The below reflects
Hawkeye Management’s forecast of Networks segment performance
| |
Actuals |
Projections |
Hawkeye
Extrapolation |
'22E
- '26E |
'26E
- '31E |
| $ in millions |
2020A |
2021A |
2022E |
2023E |
2024E |
2025E |
2026E |
2027E |
2028E |
2029E |
2030E |
2031E |
CAGR |
CAGR |
| WAPA Puerto Rico |
$75 |
$82 |
$86 |
$88 |
$96 |
$92 |
$96 |
$97 |
$104 |
$100 |
$101 |
$103 |
3% |
1% |
| Cable Networks |
76 |
73 |
76 |
75 |
77 |
78 |
80 |
82 |
83 |
84 |
84 |
85 |
1% |
1% |
| Total Net Revenue |
$151 |
$155 |
$161 |
$164 |
$173 |
$170 |
$176 |
$179 |
$187 |
$183 |
$186 |
$188 |
2% |
1% |
| Y/Y Growth % |
|
2% |
4% |
1% |
6% |
(1%) |
3% |
2% |
5% |
(2%) |
1% |
1% |
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Cost of Revenue |
$48 |
$49 |
$52 |
$53 |
$57 |
$59 |
$62 |
$64 |
$67 |
$69 |
$71 |
$73 |
4% |
3% |
| SG&A |
39 |
42 |
47 |
48 |
50 |
51 |
53 |
54 |
56 |
58 |
60 |
62 |
3% |
3% |
| Operating Expenses |
$88 |
$91 |
$99 |
$101 |
$107 |
$110 |
$114 |
$118 |
$123 |
$127 |
$131 |
$135 |
4% |
3% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Memo: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Corporate Overhead Allocation1 |
|
(3) |
(4) |
(4) |
(4) |
(5) |
(5) |
(5) |
(5) |
(5) |
(6) |
(6) |
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Adj. EBITDA 1 |
$64 |
$67 |
$66 |
$66 |
$70 |
$65 |
$66 |
$66 |
$70 |
$62 |
$60 |
$59 |
(0%) |
(2%) |
| Y/Y Growth % |
|
6% |
(1%) |
(0%) |
6% |
(8%) |
2% |
(1%) |
6% |
(11%) |
(2%) |
(2%) |
|
|
| Margin % |
42% |
43% |
41% |
41% |
41% |
38% |
38% |
37% |
37% |
34% |
33% |
31% |
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| SBC |
|
(5) |
(5) |
(5) |
(6) |
(6) |
(6) |
(6) |
(7) |
(7) |
(7) |
(8) |
6% |
5% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Adj. EBITDA (Post-SBC) 1 |
$64 |
$63 |
$62 |
$61 |
$65 |
$59 |
$60 |
$59 |
$63 |
$55 |
$53 |
$51 |
(1%) |
(3%) |
| Y/Y Growth % |
|
(2%) |
(2%) |
(1%) |
6% |
(9%) |
2% |
(2%) |
6% |
(13%) |
(3%) |
(3%) |
|
|
| Margin % |
42% |
40% |
38% |
37% |
38% |
35% |
34% |
33% |
34% |
30% |
29% |
27% |
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Revenue by Type (%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Subscriber Fees |
51% |
50% |
48% |
47% |
45% |
45% |
44% |
44% |
42% |
43% |
43% |
43% |
|
|
| Net Advertising |
46% |
47% |
47% |
48% |
50% |
48% |
48% |
48% |
50% |
48% |
48% |
48% |
|
|
| Other |
3% |
3% |
5% |
5% |
5% |
7% |
8% |
8% |
8% |
9% |
9% |
10% |
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Memo: Capex |
$2 |
$4 |
$4 |
$4 |
$4 |
$4 |
$4 |
$5 |
$5 |
$5 |
$6 |
$6 |
|
|
| Source: | Hawkeye
Management |
| 1. | Adj.
EBITDA adjusted for 25% of corporate overhead expenses allocated to Pelican per Hawkeye
Management |
Strictly
Private and Confidential
Overview
of Projections
Pelican
Summary
The
below reflects Hawkeye Management’s forecast of the Pelican segment performance
| |
Actuals |
Projections |
Hawkeye
Extrapolation |
'22E
- '26E |
'26E
- '31E |
| $ in millions |
2020A |
2021A |
2022E |
2023E |
2024E |
2025E |
2026E |
2027E |
2028E |
2029E |
2030E |
2031E |
CAGR |
CAGR |
| Total
EoP Subscribers (000s) |
850 |
948 |
1,461 |
1,986 |
2,506 |
2,966 |
3,366 |
3,666 |
3,966 |
4,216 |
4,416 |
4,566 |
23% |
6% |
| Y/Y
Growth % |
30% |
12% |
54% |
36% |
26% |
18% |
13% |
9% |
8% |
6% |
5% |
3% |
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Subscription |
$44 |
$51 |
$57 |
$90 |
$125 |
$154 |
$179 |
$219 |
$247 |
$265 |
$280 |
$291 |
33% |
10% |
| Theatrical |
0 |
0 |
6 |
21 |
28 |
-- |
-- |
-- |
-- |
-- |
-- |
-- |
n/m |
0% |
| Licensing
& Other |
2 |
2 |
15 |
27 |
33 |
27 |
24 |
24 |
23 |
24 |
25 |
26 |
12% |
2% |
| Total Net Revenue |
$47 |
$53 |
$78 |
$138 |
$186 |
$181 |
$202 |
$243 |
$270 |
$289 |
$304 |
$317 |
27% |
9% |
| Y/Y
Growth % |
|
13% |
48% |
76% |
35% |
(3%) |
12% |
20% |
11% |
7% |
5% |
4% |
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Content |
$10 |
$5 |
$19 |
$43 |
$57 |
$50 |
$53 |
$59 |
$66 |
$71 |
$78 |
$84 |
29% |
10% |
| Distribution |
5 |
5 |
6 |
8 |
11 |
13 |
15 |
18 |
21 |
22 |
23 |
24 |
26% |
10% |
| Technical |
3 |
5 |
6 |
6 |
7 |
8 |
10 |
11 |
12 |
12 |
13 |
14 |
13% |
7% |
| Marketing |
32 |
47 |
50 |
62 |
70 |
73 |
70 |
79 |
87 |
87 |
89 |
90 |
9% |
5% |
| Other
SG&A |
11 |
12 |
21 |
30 |
38 |
19 |
19 |
19 |
20 |
21 |
22 |
23 |
(3%) |
4% |
| Operating Expenses |
$61 |
$74 |
$102 |
$149 |
$183 |
$163 |
$167 |
$187 |
$205 |
$214 |
$225 |
$235 |
13% |
7% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Memo: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Corporate Overhead Allocation1 |
|
3 |
4 |
4 |
4 |
5 |
5 |
5 |
5 |
5 |
6 |
6 |
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Adj. EBITDA 1 |
($14) |
($24) |
($28) |
($15) |
($1) |
$13 |
$31 |
$51 |
$60 |
$69 |
$74 |
$76 |
n/m |
20% |
| Y/Y
Growth % |
n/m |
n/m |
n/m |
n/m |
n/m |
n/m |
128% |
66% |
17% |
16% |
7% |
3% |
|
|
| Margin
% |
n/m |
n/m |
n/m |
n/m |
n/m |
7% |
15% |
21% |
22% |
24% |
24% |
24% |
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| SBC |
|
(2) |
(2) |
(2) |
(2) |
(2) |
(2) |
(2) |
(2) |
(2) |
(2) |
(3) |
6% |
5% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Adj. EBITDA (Post-SBC)
1 |
($14) |
($26) |
($29) |
($17) |
($3) |
$12 |
$29 |
$49 |
$58 |
$67 |
$71 |
$74 |
n/m |
21% |
| Y/Y
Growth % |
n/m |
n/m |
n/m |
n/m |
n/m |
n/m |
149% |
70% |
18% |
16% |
7% |
3% |
|
|
| Margin
% |
n/m |
n/m |
n/m |
n/m |
n/m |
6% |
14% |
20% |
21% |
23% |
23% |
23% |
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Select KPIs2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Monthly
Churn |
12% |
8% |
8% |
7% |
7% |
6% |
6% |
6% |
6% |
6% |
6% |
6% |
|
|
| ARPU |
$4.88 |
$4.76 |
$3.96 |
$4.35 |
$4.65 |
$4.69 |
$4.70 |
$5.20 |
$5.40 |
$5.40 |
$5.40 |
$5.40 |
|
|
| SAC |
$27.41 |
$48.79 |
$34.33 |
$30.31 |
$29.38 |
$29.43 |
$30.00 |
$33.00 |
$34.00 |
$33.00 |
$33.00 |
$33.00 |
|
|
| LTV |
$39.15 |
$59.67 |
$51.19 |
$61.63 |
$69.41 |
$74.49 |
$75.20 |
$83.87 |
$87.80 |
$88.52 |
$89.26 |
$90.00 |
|
|
| LTV
/ SAC |
1.4x |
1.2x |
1.5x |
2.0x |
2.4x |
2.5x |
2.5x |
2.5x |
2.6x |
2.7x |
2.7x |
2.7x |
|
|
| Cash
Content Cost ($mm) |
$22 |
$36 |
$32 |
$36 |
$39 |
$43 |
$47 |
$52 |
$57 |
$63 |
$69 |
$76 |
|
|
| Source: | Hawkeye
Management |
|
| 1. | Adj.
EBITDA adjusted for 25% of corporate overhead expenses allocated to Pelican per Hawkeye
Management |
| 2. | KPI
figures for 2021A reflects operating results for the nine months ending December 31,
2021 |
Strictly Private
and Confidential
Overview
of Projections
Consolidated Summary
The below reflects
Hawkeye Management’s forecast of the financial performance of the entire Hawkeye business (Networks and Pelican)
| |
Actuals |
Projections |
Hawkeye
Extrapolation |
'22E
- '26E |
'26E
- '31E |
| $ in millions |
2020A |
2021A |
2022E |
2023E |
2024E |
2025E |
2026E |
2027E |
2028E |
2029E |
2030E |
2031E |
CAGR |
CAGR |
| WAPA Puerto Rico |
$75 |
$82 |
$86 |
$88 |
$96 |
$92 |
$96 |
$97 |
$104 |
$100 |
$101 |
$103 |
3% |
1% |
| Cable Networks |
76 |
73 |
76 |
75 |
77 |
78 |
80 |
82 |
83 |
84 |
84 |
85 |
1% |
1% |
| Pelican |
47 |
53 |
78 |
138 |
186 |
181 |
202 |
243 |
270 |
289 |
304 |
317 |
27% |
5% |
| Total Net Revenue |
$198 |
$208 |
$240 |
$302 |
$359 |
$352 |
$378 |
$422 |
$458 |
$472 |
$490 |
$505 |
12% |
4% |
| Y/Y Growth % |
|
5% |
15% |
26% |
19% |
(2%) |
8% |
12% |
9% |
3% |
4% |
3% |
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Networks |
$48 |
$49 |
$52 |
$53 |
$57 |
$59 |
$62 |
$64 |
$67 |
$69 |
$71 |
$73 |
4% |
3% |
| Pelican |
18 |
14 |
31 |
57 |
75 |
72 |
77 |
88 |
98 |
106 |
114 |
123 |
26% |
7% |
| Total Cost of Revenue |
$66 |
$63 |
$83 |
$111 |
$132 |
$131 |
$139 |
$152 |
$165 |
$175 |
$185 |
$195 |
14% |
5% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Networks
Pelican |
$39
43 |
$42
59 |
$47
71 |
$48
92 |
$50
108 |
$51
91 |
$53
89 |
$54
99 |
$56
107 |
$58
108 |
$60
111 |
$62
112 |
3%
6% |
3%
3% |
| Total SG&A |
$82 |
$101 |
$118 |
$140 |
$158 |
$142 |
$142 |
$153 |
$164 |
$167 |
$171 |
$174 |
5% |
3% |
| Total Operating Expenses |
$149 |
$165 |
$201 |
$251 |
$290 |
$273 |
$281 |
$305 |
$328 |
$341 |
$355 |
$370 |
9% |
4% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Consolidated Adj. EBITDA |
$50 |
$43 |
$39 |
$51 |
$69 |
$78 |
$97 |
$116 |
$129 |
$131 |
$134 |
$135 |
26% |
3% |
| Y/Y Growth % |
|
(13%) |
(10%) |
32% |
35% |
13% |
23% |
20% |
11% |
1% |
3% |
1% |
|
|
| Margin % |
25% |
21% |
16% |
17% |
19% |
22% |
26% |
28% |
28% |
28% |
27% |
27% |
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| SBC |
(5) |
(6) |
(6) |
(7) |
(7) |
(8) |
(8) |
(9) |
(9) |
(9) |
(10) |
(10) |
6% |
4% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Adj. EBITDA (Post-SBC) |
$44 |
$37 |
$32 |
$44 |
$62 |
$71 |
$89 |
$108 |
$120 |
$121 |
$124 |
$125 |
|
|
| Y/Y Growth % |
|
(17%) |
(12%) |
36% |
40% |
14% |
26% |
22% |
12% |
1% |
2% |
0% |
|
|
| Margin % |
22% |
18% |
14% |
15% |
17% |
20% |
23% |
26% |
26% |
26% |
25% |
25% |
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Contribution (%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Revenue - Networks |
76% |
74% |
67% |
54% |
48% |
48% |
47% |
42% |
41% |
39% |
38% |
37% |
|
|
| Revenue - Pelican |
24% |
26% |
33% |
46% |
52% |
52% |
53% |
58% |
59% |
61% |
62% |
63% |
|
|
| EBITDA - Networks |
n/m |
n/m |
n/m |
n/m |
102% |
83% |
68% |
56% |
54% |
47% |
45% |
44% |
|
|
| EBITDA - Pelican |
n/m |
n/m |
n/m |
n/m |
(2%) |
17% |
32% |
44% |
46% |
53% |
55% |
56% |
|
|
Source: Hawkeye Management
Strictly
Private and Confidential
| III. | Preliminary
Financial Analysis Summary |
Strictly
Private and Confidential
Summary
of Changes to Financial Analysis
Strictly
Private and Confidential
Preliminary
Financial Analyses and Commentary
Moelis
performed its financial analysis on a sum-of-the-parts basis (“SOTP”) because of the different characteristics of
Hawkeye’s business lines: (1) Networks, a broadcaster with cable network assets, and (2) Pelican, an SVOD platform
| |
|
 |
▪
The
DCF analysis was performed using the LRP and Extrapolation provided by Hawkeye for 2022E
– 2031E
▪
The
DCF analysis was discounted to March 31, 2022 and relied upon the mid-year convention
–
Moelis discounted the cash flows separately for the Networks and Pelican businesses, and then added
together the DCF analyses to calculate a consolidated DCF price per share
▪
Moelis used the
perpetuity growth method to calculate estimated terminal values
▪
To
calculate the normalized impact of election year cash flows on the Networks business, Hawkeye Management directed Moelis
to increase 2031E EBITDA to calculate a normalized terminal year EBITDA. See appendix A for additional detail |
| |
|
 |
▪
Moelis
reviewed and analyzed certain financial information and market trading data related to companies
whose operations Moelis believed to be generally relevant for the Networks and Pelican businesses
for purposes of this analysis
▪
For Networks,
selected publicly traded companies analysis focused on EV / EBITDA multiples based on Wall Street consensus estimates
for 2022E and 2023E EBITDA1
▪
For Pelican,
selected publicly traded companies analysis focused on EV / revenue multiples based on Wall Street consensus estimates for 2022E
and 2023E |
| |
|
 |
▪
Moelis
reviewed and analyzed certain selected precedent merger and acquisition transactions
involving companies whose operations Moelis believe to be generally relevant for the
Networks and Pelican businesses for purposes of this analysis
▪
For
Networks, selected precedent transaction analysis focused on EV / EBITDA multiples
▪
For Pelican, selected precedent
transaction analysis focused on EV / revenue multiples |
|
|
| 1. |
For
publicly traded Broadcasters, 2022E and 2023E EBITDA reflects consensus estimates for the average of 2021/2022 and 2022/2023,
reflecting the significant political advertising contributions in even years to those businesses |
Strictly
Private and Confidential
Preliminary
Financial Analysis Summary – Consolidated
| Source: | Hawkeye
Management, Wall Street research, Capital IQ |
| Note: | Market
data as of 05/06/2022. Assumes 20.7mm Class A shares, 19.7mm Class B Shares, 4.48mm options
with strike prices ranging from $5.44 to $15.00, total debt of $251.6mm, cash of $37.3mm,
equity method investments of $22.7mm (which are treated as cash and calculated using
Hawkeye Management’s estimate for the value of these assets) and post-tax pension
liability of $1.7mm per Hawkeye Management |
Strictly
Private and Confidential
Appendix
Strictly
Private and Confidential
A.
Preliminary Discounted Cash Flow Analysis
Strictly
Private and Confidential
Discounted
Cash Flow Analysis
Networks Methodology & Assumptions
Discounted
cash flow (“DCF”) analysis reflects implied enterprise value range based on estimated present value of unlevered after-tax
free cash flows projected by Hawkeye Management and estimated present value of terminal value
| ▪ | Based on Hawkeye Management’s projections for the Networks business |
| — | Tax rate based on effective tax rate of 30.5% for Networks per Hawkeye Management; cash tax
projections do not take into account potential benefit from interest tax shield or other tax characteristics that the Networks
business may benefit from |
| — | Assumes transaction date of 03/31/22 and uses projected 03/31/22 balance sheet information per
Hawkeye Management |
| ▪ | Unlevered after-tax free cash flows from 2022E through 2031E and terminal values were discounted
to March 31, 2022 using the mid-year convention |
| — | Discount rate range of 8.25% to 10.50% derived from the capital asset pricing model (“CAPM”) |
| ▪ | To calculate the estimated terminal value, Moelis used the perpetuity growth method and assumed a perpetuity growth rate
of (3.0)% to 1.0% |
| — | Perpetuity growth assumption of (3.0)% to 1.0% reflects declining EBITDA and free cash flow in
the extrapolated period |
| — | Terminal year cash flows set equal to 2031E except for the below adjustments: |
| ● | EBITDA increased, per Hawkeye Management, by $1.1mm to reflect a normalized
level of contributions from political revenue over a four year election cycle |
| – | This adjustment was calculated, per Hawkeye Management,
by assuming an incremental $6.3mm of terminal year revenue, less agency commissions and news costs, resulting in an election year
EBITDA contribution of $4.35mm. This figure was then multiplied by 25% to reflect a four year election cycle, resulting in $1.1mm
of incremental EBITDA added to the terminal year |
| ● | Terminal year D&A set equal to terminal year capex per Hawkeye Management |
| ▪ | Networks DCF value calculated on an enterprise value basis; in order to calculate consolidated
value implied by the DCF on a per share basis, Moelis utilized the following approach: |
| — | First, Networks DCF and Pelican DCF enterprise values were added together |
| — | Second, the combined enterprise value was reduced by total Hawkeye net debt (see page 69) to calculate consolidated equity
value |
| — | Third, the consolidated equity value was divided by the number of fully diluted shares outstanding (see page 69) to calculate
per share equity value |
Source: Hawkeye Management
Strictly
Private and Confidential
Discounted
Cash Flow Analysis
Networks
PROJECTED UNLEVERED FREE CASH FLOW
| |
Actuals |
Projections |
Hawkeye Extrapolation |
Terminal |
| ($
in millions) |
2021A |
Q1 '22E |
Q2-Q4 '22E |
2023E |
2024E |
2025E |
2026E |
2027E |
2028E |
2029E |
2030E |
2031E |
Year |
| Adjusted EBITDA |
$67.2 |
$14.0 |
$52.4 |
$66.4 |
$70.4 |
$65.0 |
$66.2 |
$65.5 |
$69.5 |
$61.7 |
$60.5 |
$59.0 |
$60.1 1 |
| % Growth |
|
|
|
27% |
6% |
(8%) |
2% |
(1%) |
6% |
(11%) |
(2%) |
(2%) |
2% |
| Less: SBC |
($1.1) |
(3.7) |
(5.3) |
(5.5) |
(5.8) |
(6.1) |
(6.4) |
(6.7) |
(7.1) |
(7.4) |
(7.8) |
(7.8) |
| Less: Depreciation & Amortization |
($2.6) |
(3.7) |
(5.0) |
(5.2) |
(5.2) |
(5.3) |
(5.3) |
(5.3) |
(5.3) |
(5.3) |
(5.3) |
(6.0) |
| Less:
Severance |
-- |
-- |
-- |
-- |
-- |
-- |
-- |
-- |
-- |
(0.5) |
(0.5) |
-- |
| Adjusted EBIT |
|
$10.4 |
$45.0 |
$56.1 |
$59.7 |
$54.0 |
$54.9 |
$53.8 |
$57.6 |
$49.4 |
$47.3 |
$45.5 |
$46.3 |
| Less:
Taxes |
|
(3.2) |
(13.7) |
(17.1) |
(18.2) |
(16.5) |
(16.7) |
(16.4) |
(17.6) |
(15.1) |
(14.4) |
(13.9) |
(14.1) |
| Tax-Affected EBIT |
|
$7.2 |
$31.3 |
$39.0 |
$41.5 |
$37.5 |
$38.1 |
$37.4 |
$40.0 |
$34.3 |
$32.9 |
$31.6 |
$32.2 |
| Plus: Depreciation & Amortization |
|
2.6 |
3.7 |
5.0 |
5.2 |
5.2 |
5.3 |
5.3 |
5.3 |
5.3 |
5.3 |
5.3 |
6.0 |
| Plus: Programming Amortization |
3.1 |
11.1 |
12.9 |
13.4 |
13.9 |
14.4 |
15.1 |
15.8 |
16.5 |
17.2 |
18.0 |
18.0 |
| Less: Capital Expenditures |
(0.8) |
(2.7) |
(4.0) |
(4.0) |
(4.0) |
(4.0) |
(5.0) |
(5.0) |
(5.0) |
(6.0) |
(6.0) |
(6.0) |
| Less: Programming Payments |
(4.7) |
(10.2) |
(13.6) |
(14.2) |
(15.0) |
(15.7) |
(16.4) |
(17.1) |
(17.9) |
(18.7) |
(19.6) |
(19.6) |
| Less: Equity Method Investments |
(0.1) |
(0.9) |
-- |
-- |
-- |
-- |
-- |
-- |
-- |
-- |
-- |
-- |
| Plus: Other Adj. |
0.1 |
0.4 |
0.5 |
0.3 |
0.2 |
0.2 |
0.2 |
0.2 |
0.2 |
0.2 |
0.2 |
0.2 |
| Less:
(Incr.) / Decr. in NWC |
(3.8) |
4.6 |
3.3 |
(0.2) |
1.9 |
0.6 |
0.5 |
(0.2) |
1.0 |
0.1 |
0.1 |
0.1 |
| Unlevered Free Cash Flow |
|
$3.6 |
$37.1 |
$43.1 |
$41.9 |
$39.9 |
$38.9 |
$37.0 |
$38.8 |
$34.3 |
$30.9 |
$29.5 |
$30.9 |
| % Growth |
|
|
|
16% |
(3%) |
(5%) |
(3%) |
(5%) |
5% |
(12%) |
(10%) |
(4%) |
4% |
| % Conversion |
|
71% |
65% |
60% |
61% |
59% |
57% |
56% |
56% |
51% |
50% |
51% |
| IMPLIED TOTAL ENTERPRISE VALUE (“TEV”) |
|
IMPLIED TEV / TERMINAL ADJ. EBITDA |
| |
|
|
|
|
|
| |
|
Perpetuity Growth Rate |
|
|
|
Perpetuity Growth Rate |
| |
|
(3.0%) |
(2.0%) |
(1.0%) |
0.0% |
1.0% |
|
|
|
(3.0%) |
(2.0%) |
(1.0%) |
0.0% |
1.0% |
| |
8.3% |
$394 |
$408 |
$425 |
$446 |
$473 |
|
|
8.3% |
4.6x |
5.1x |
5.7x |
6.5x |
7.4x |
| |
8.8% |
377 |
389 |
404 |
422 |
444 |
|
|
8.8% |
4.4x |
4.9x |
5.4x |
6.1x |
6.9x |
| WACC |
9.4% |
362 |
372 |
385 |
400 |
419 |
|
WACC |
9.4% |
4.2x |
4.6x |
5.1x |
5.7x |
6.5x |
| |
9.9% |
347 |
357 |
367 |
380 |
396 |
|
|
9.9% |
4.0x |
4.4x |
4.9x |
5.4x |
6.1x |
| |
10.5% |
334 |
342 |
352 |
363 |
377 |
|
|
10.5% |
3.9x |
4.2x |
4.6x |
5.1x |
5.7x |
| Source: | Hawkeye
Management |
| Note: | Cash
flows discounted back to 3/31/2022 |
| 1. | Per
Hawkeye Management, to calculate the normalized impact of election year cash flows on
the Networks business, analysis increased 2031E EBITDA to calculate a normalized terminal
year EBITDA. This adjustment was calculated by an assuming an incremental $6.3mm of terminal
year revenue, less agency commissions and news costs, resulting in an election year EBITDA
contribution of $4.35mm. This figure was then multiplied by 25% to reflect a four year
election cycle, resulting in $1.1mm of incremental EBITDA added to the terminal year |
Strictly
Private and Confidential
Discounted
Cash Flow Analysis
Pelican Methodology & Assumptions
Discounted
cash flow (“DCF”) analysis reflects implied enterprise value range based on estimated present value of unlevered after-tax
free cash flows projected by Hawkeye Management and estimated present value of terminal value
| ▪ | Based on Hawkeye Management’s projections for the Pelican business |
| — | Tax rate based on effective tax rate of 24% for Pelican per Hawkeye Management |
| — | Assumes transaction date of 03/31/22 and uses estimated 03/31/22 balance sheet information per Hawkeye Management |
| ▪ | Unlevered after-tax free cash flows from 2022E through 2031E and terminal values were discounted to March 31, 2022 using
the mid-year convention |
| — | Discount rate range of 15.00% to 23.00% derived from the CAPM and private studies on cost of capital for late stage venture
investments1 |
| ▪ | Tax Savings that Pelican is forecasted to generate on a standalone basis were valued separately,
and discounted to March 31, 2022, using the same discount rate range derived from the WACC calculation for the Networks business |
| — | NOL balance is zero per Hawkeye Management, as prior Pelican taxable losses were used to offset
taxes owed on income generated by the Networks business |
| — | Tax savings estimated as Pelican’s negative EBIT (as presented on the DCF), and are expected to be used immediately to
offset taxes owed on income generated by the Networks business |
| — | Because the income the tax savings are offsetting is generated at the Networks business, Moelis
used the Networks discount rate to calculate the value of the Tax Savings |
| ▪ | To calculate the terminal value, Moelis used the perpetuity growth method and assumed a perpetuity growth rate of 0.5% to
2.0% |
| — | Perpetuity growth assumption of 1.0% to 3.0% in-line with forecasted U.S. GDP growth |
| — | Terminal year cash flows set equal to 2031E except for the below adjustments: |
| ● | Terminal year D&A set equal to terminal year capex per Hawkeye Management |
| ● | Terminal year cash content spend set equal to terminal year content amortization per Hawkeye Management |
| ▪ | Pelican DCF value calculated on an enterprise value basis; in order to calculate consolidated
value implied by the DCF on a per share basis, Moelis utilized the following approach: |
| — | First, Networks DCF and Pelican DCF enterprise values were added together |
| — | Second, the combined enterprise value was reduced by total Hawkeye net debt (see page 69) to calculate consolidated equity
value |
| — | Third, the consolidated equity value was divided by the number of fully diluted shares outstanding
(see page 69) to calculate per share equity value |
| Source: | Hawkeye
Management |
| 1. | 2021
Private Capital Markets Report (Pepperdine University) |
Strictly
Private and Confidential
Discounted
Cash Flow Analysis
Pelican
PROJECTED UNLEVERED FREE CASH FLOW
| |
Actuals |
Projections |
Hawkeye Extrapolation |
Terminal |
| ($
in millions) |
2021A |
Q1 '22E |
Q2-Q4 '22E |
2023E |
2024E |
2025E |
2026E |
2027E |
2028E |
2029E |
2030E |
2031E |
Year |
| Net Revenue |
$53.0 |
$15.3 |
$63.0 |
$138.2 |
$186.2 |
$181.2 |
$202.2 |
$242.9 |
$270.3 |
$288.8 |
$304.3 |
$317.0 |
$317.0 |
| % Growth |
|
|
|
119% |
35% |
(3%) |
12% |
20% |
11% |
7% |
5% |
4% |
0% |
| Adjusted EBITDA |
($24.1) |
($12.1) |
($15.5) |
($15.2) |
($1.2) |
$13.5 |
$30.7 |
$51.0 |
$59.9 |
$69.2 |
$73.8 |
$76.2 |
$76.2 |
| % Growth |
|
|
|
2% |
92% |
n/m |
128% |
66% |
17% |
16% |
7% |
3% |
0% |
| Less: SBC |
(0.4) |
(1.2) |
(1.8) |
(1.8) |
(1.9) |
(2.0) |
(2.1) |
(2.2) |
(2.4) |
(2.5) |
(2.6) |
(2.6) |
| Less:
Depreciation & Amortization |
(5.0) |
(14.9) |
(19.8) |
(19.8) |
(12.4) |
(4.7) |
(4.7) |
(4.7) |
(4.7) |
(4.7) |
(1.2) |
(0.8) |
| Adjusted EBIT |
|
($17.4) |
($31.6) |
($36.8) |
($22.8) |
($0.9) |
$24.0 |
$44.2 |
$52.9 |
$62.1 |
$66.6 |
$72.4 |
$72.8 |
| Less:
Taxes |
|
-- |
-- |
-- |
-- |
-- |
(5.8) |
(10.6) |
(12.7) |
(14.9) |
(16.0) |
(17.4) |
(17.5) |
| Tax-Affected EBIT |
|
($17.4) |
($31.6) |
($36.8) |
($22.8) |
($0.9) |
$18.2 |
$33.6 |
$40.2 |
$47.2 |
$50.6 |
$55.0 |
$55.3 |
| Plus: Depreciation & Amortization |
|
5.0 |
14.9 |
19.8 |
19.8 |
12.4 |
4.7 |
4.7 |
4.7 |
4.7 |
4.7 |
1.2 |
0.8 |
| Less: Capital Expenditures |
(0.3) |
(1.2) |
(0.8) |
(0.8) |
(0.8) |
(0.8) |
(0.8) |
(0.8) |
(0.8) |
(0.8) |
(0.8) |
(0.8) |
| Plus: Content Amortization |
2.5 |
11.0 |
24.6 |
33.8 |
42.4 |
47.2 |
54.3 |
61.8 |
68.0 |
74.5 |
81.5 |
81.5 |
| Less: Cash Content Spend |
(5.3) |
(27.0) |
(35.5) |
(39.1) |
(43.0) |
(47.3) |
(52.0) |
(57.2) |
(63.0) |
(69.3) |
(76.2) |
(81.5) |
| Less: LatAm Cash Timing Diff. |
(0.1) |
0.6 |
0.9 |
-- |
-- |
-- |
-- |
-- |
-- |
-- |
-- |
-- |
| Less: Change in Working Capital |
6.0 |
(6.2) |
(2.2) |
(1.6) |
(1.7) |
(1.8) |
(2.2) |
(2.5) |
(2.6) |
(2.8) |
(2.9) |
(2.9) |
| Plus:
Pantelion 2.0 Cash Flow |
(5.7) |
(1.3) |
(1.3) |
(6.1) |
3.6 |
(0.6) |
(1.3) |
(0.8) |
1.0 |
1.5 |
0.9 |
0.9 |
| Unlevered Free Cash Flow |
|
($15.4) |
($40.8) |
($31.2) |
($16.8) |
$12.1 |
$19.6 |
$36.2 |
$45.6 |
$54.6 |
$58.5 |
$58.7 |
$53.3 |
| % Growth |
|
|
|
23% |
46% |
172% |
62% |
85% |
26% |
20% |
7% |
0% |
(9%) |
| % Conversion |
|
n/m |
n/m |
n/m |
90% |
64% |
71% |
76% |
79% |
79% |
77% |
70% |
| IMPLIED
TOTAL ENTERPRISE VALUE (“TEV”) 1 |
|
IMPLIED TEV / TERMINAL REVENUE |
| |
|
|
|
|
|
| |
|
Perpetuity Growth Rate |
|
|
|
Perpetuity Growth Rate |
| |
|
1.0% |
1.5% |
2.0% |
2.5% |
3.0% |
|
|
|
1.0% |
1.5% |
2.0% |
2.5% |
3.0% |
| |
15.0% |
$158 |
$162 |
$167 |
$172 |
$178 |
|
|
15.0% |
1.3x |
1.4x |
1.4x |
1.5x |
1.5x |
| |
17.0% |
121 |
123 |
127 |
130 |
134 |
|
|
17.0% |
1.1x |
1.2x |
1.2x |
1.3x |
1.3x |
| WACC |
19.0% |
92 |
94 |
97 |
99 |
101 |
|
WACC |
19.0% |
1.0x |
1.1x |
1.1x |
1.1x |
1.2x |
| |
21.0% |
71 |
72 |
74 |
75 |
77 |
|
|
21.0% |
0.9x |
1.0x |
1.0x |
1.0x |
1.1x |
| |
23.0% |
54 |
55 |
56 |
57 |
58 |
|
|
23.0% |
0.9x |
0.9x |
0.9x |
0.9x |
1.0x |
| Source: | Hawkeye
Management |
| Note: | Cash
flows discounted back to 3/31/2022 |
| 1. | Includes
present value of Tax Savings (see next page for detail) |
Strictly
Private and Confidential
Discounted
Cash Flow (DCF) Analysis
Pelican Tax Savings Analysis
TAX SAVINGS PROJECTIONS
| |
Actuals |
Projection |
Hawkeye Extrapolation |
| ($ in millions) |
2021A |
Q2-Q4 '22E |
2023E |
2024E |
2025E |
2026E |
2027E |
2028E |
2029E |
2030E |
2031E |
| |
|
|
|
|
|
|
|
|
|
|
|
| Adj. EBIT (Pelican) |
|
($31.6) |
($36.8) |
($22.8) |
($0.9) |
$24.0 |
$44.2 |
$52.9 |
$62.1 |
$66.6 |
$72.4 |
| |
|
|
|
|
|
|
|
|
|
|
|
| Adj. EBIT Losses (Pelican) |
|
($31.6) |
($36.8) |
($22.8) |
($0.9) |
$-- |
$-- |
$-- |
$-- |
$-- |
$-- |
| (x) Tax Rate (Pelican) |
|
24.0% |
24.0% |
24.0% |
24.0% |
24.0% |
24.0% |
24.0% |
24.0% |
24.0% |
24.0% |
| Tax Savings Generated |
|
$7.6 |
$8.8 |
$5.5 |
$0.2 |
- |
- |
- |
- |
- |
- |
| |
|
|
|
|
|
|
|
|
|
|
|
| Memo |
|
|
|
|
|
|
|
|
|
|
|
| Adj. EBIT (Networks) |
|
$45.0 |
$56.1 |
$59.7 |
$54.0 |
$54.9 |
$53.8 |
$57.6 |
$49.4 |
$47.3 |
$45.5 |
| (-) Taxes (Networks) |
|
(13.7) |
(17.1) |
(18.2) |
(16.5) |
(16.7) |
(16.4) |
(17.6) |
(15.1) |
(14.4) |
(13.9) |
| Implied Tax Rate |
|
30.5% |
30.5% |
30.5% |
30.5% |
30.5% |
30.5% |
30.5% |
30.5% |
30.5% |
30.5% |
| Tax Affected EBIT (Networks) |
|
$31.3 |
$39.0 |
$41.5 |
$37.5 |
$38.1 |
$37.4 |
$40.0 |
$34.3 |
$32.9 |
$31.6 |
| PRESENT VALUE OF TAX SAVINGS |
| |
|
|
|
|
| |
|
WACC |
|
|
| 8.3% |
8.8% |
9.4% |
9.9% |
10.5% |
| $20.1 |
$20.0 |
$19.9 |
$19.7 |
$19.6 |
| Source: | Hawkeye Management |
Strictly
Private and Confidential
Discounted
Cash Flow Analysis
Consolidated (Networks + Pelican)
| CONSOLIDATED
TEV (INCL. PV OF TAX SAVINGS) |
|
IMPLIED
SHARE PRICE (INCL. PV OF TAX SAVINGS) |
| |
|
|
|
|
|
| |
|
Perpetuity
Growth Rate |
|
|
Perpetuity
Growth Rate |
| |
|
-3.0%
/ 1.0% |
-2.0%
/ 1.5% |
-1.0%
/ 2.0% |
0.0%
/ 2.5% |
1.0%
/ 3.0% |
|
|
|
-3.0%
/ 1.0% |
-2.0%
/ 1.5% |
-1.0%
/ 2.0% |
0.0%
/ 2.5% |
1.0%
/ 3.0% |
| |
8.3%
/ 15.0% |
$552 |
$571 |
$592 |
$619 |
$651 |
|
|
8.3%
/ 15.0% |
$8.88 |
$9.33 |
$9.87 |
$10.50 |
$11.28 |
| |
8.8%
/ 17.0% |
498 |
513 |
530 |
551 |
577 |
|
|
8.8%
/ 17.0% |
$7.53 |
$7.90 |
$8.33 |
$8.86 |
$9.50 |
| WACC |
9.4%
/ 19.0% |
454 |
467 |
481 |
499 |
520 |
|
WACC |
9.4%
/ 19.0% |
$6.45 |
$6.76 |
$7.12 |
$7.55 |
$8.07 |
| |
9.9%
/ 21.0% |
418 |
429 |
441 |
456 |
473 |
|
|
9.9%
/ 21.0% |
$5.57 |
$5.83 |
$6.13 |
$6.49 |
$6.93 |
| |
10.5%
/ 23.0% |
388 |
397 |
408 |
420 |
435 |
|
|
10.5%
/ 23.0% |
$4.82 |
$5.05 |
$5.31 |
$5.61 |
$5.98 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Networks
/ Pelican |
|
|
|
|
|
|
Networks
/ Pelican |
|
|
|
|
| Source: | Hawkeye
Management |
Strictly Private and
Confidential
| B. | Preliminary Selected Publicly
Traded Companies Analysis |
Strictly
Private and Confidential
Selected
Publicly Traded Companies Analysis
Summary
– 2022E
Analysis
reflects implied enterprise value to Adj. EBITDA multiples and implied enterprise value to Revenue multiples for Networks and
Pelican, respectively, based on public market trading multiples of companies deemed generally relevant by Moelis in certain respects
to Hawkeye for purposes of this analysis
| |
|
|
|
|
|
Multiple Range |
|
Enterprise Value |
| Segment |
|
Metric |
|
Value |
|
Low |
- |
High |
|
Low |
- |
High |
| Networks |
|
2022E Adj.
EBITDA (Post-SBC) |
|
$61.6 |
|
5.75x |
- |
6.75x |
|
$354 |
- |
$416 |
| Pelican |
|
2022E Revenue |
|
$78.3 |
|
0.75x |
- |
1.75x |
|
$59 |
- |
$137 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Total Enterprise Value |
|
|
|
|
|
|
|
$413 |
|
$553 |
| Less: Net Debt (as of 3/31/22) 1 |
|
|
|
|
|
|
|
(214) |
|
(214) |
| Add: Other (as of 3/31/22) 1 |
|
|
|
|
|
|
|
21 |
|
21 |
| Total Equity Value |
|
|
|
|
|
|
|
$220 |
|
$360 |
| Fully Diluted Shares Outstanding (as of 3/31/22) 1 |
|
|
|
40.401 |
|
40.442 |
| Implied Equity Value per Share |
|
|
|
|
|
|
|
$5.44 |
|
$8.90 |
| Source: | Hawkeye
Management |
| 1. | See
page 69 for further detail |
Strictly
Private and Confidential
Selected
Publicly Traded Companies Analysis
Summary – 2023E
Analysis
reflects implied enterprise value to Adj. EBITDA multiples and implied enterprise value to Revenue multiples for Networks and
Pelican, respectively, based on public market trading multiples of companies deemed generally relevant by Moelis in certain respects
to Hawkeye for purposes of this analysis
| |
|
|
|
|
|
Multiple Range |
|
Enterprise Value |
| Segment |
|
Metric |
|
Value |
|
Low |
- |
High |
|
Low |
- |
High |
| Networks |
|
2023E Adj.
EBITDA (Post-SBC) |
|
$61.1 |
|
5.5x |
- |
6.5x |
|
$336 |
- |
$397 |
| Pelican |
|
2023E Revenue |
|
$138.2 |
|
0.5x |
- |
1.50x |
|
$69 |
- |
$207 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Total Enterprise Value |
|
|
|
|
|
|
|
$405 |
|
$605 |
| Less: Net Debt (as of 3/31/22) 1 |
|
|
|
|
|
|
|
(214) |
|
(214) |
| Add: Other (as of 3/31/22) 1 |
|
|
|
|
|
|
|
21 |
|
21 |
| Total Equity Value |
|
|
|
|
|
|
|
$212 |
|
$411 |
| Fully Diluted Shares Outstanding (as of 3/31/22) 1 |
|
|
|
40.401 |
|
40.452 |
| Implied Equity Value per Share |
|
|
|
|
|
|
|
$5.25 |
|
$10.17 |
| Source: | Hawkeye
Management |
| 1. | See
page 69 for further detail |
Strictly Private
and Confidential
Selected
Publicly Traded Companies Analysis
Networks:
Discussion of Selected Publicly Traded Companies
Selected publicly traded companies analysis provides a
valuation range based on public market valuations of businesses with operations and financial characteristics similar in certain
respects to Networks for purposes of this analysis
| ▪ | Moelis selected publicly traded companies which have a significant presence in the diversified media and networks as well as
TV broadcasting industries |
| — | Network segment’s principal business is producing and distributing news, sports and entertainment
content across broadcast in Puerto Rico and cable television in the U.S. primarily targeted to a U.S. Spanish language audience |
| ▪ | No single company is substantially similar across a range of key criteria including size of
the company, geographic focus, EBITDA margin, growth profile, financial leverage and business model (including ownership of broadcast
network and affiliate stations, TV market presence and business segments) |
| ▪ | Moelis selected four publicly traded diversified media and networks companies with operations
diversified across broadcast networks, cable channels, digital properties and other media assets that it deemed relevant for purposes
of this analysis |
| — | Fox Corporation is similar in certain respects to Hawkeye given its broadcast network and cable networks ownership with a focus
on TV news, sports and general entertainment programming |
| ● | Moelis views Fox Corporation as the most relevant corporation for Networks and believes Networks should trade at a discount
to Fox because: |
| – | Fox earns the majority of its revenue from its broadcast network operations and cable network operations |
| – | Fox is a “Big Four” network (includes ABC, NBC, CBS and FOX) broadcaster and has superior distribution footprint |
| – | Fox News (cable network) is carried on basic cable, whereas Hawkeyes is primarily included on lesser distributed Spanish language
tiers |
| – | Fox is expected to achieve significantly higher growth of ~5% revenue CAGR (2021-2023E) compared
to Hawkeye Networks at ~3% over the same period |
| — | Paramount is comprised of a broadcast network (CBS), owned and operated TV stations, premium
and basic cable channels (Comedy Central, Nickelodeon, etc.) and a film studio (Paramount) |
| ● | Excluding Pelican, the Networks business model is more similar in certain respects to the CBS
broadcast networks segment of the legacy CBS business and the cable networks (Nickelodeon, Comedy Central) segment of the legacy
Viacom business; the remaining assets (Paramount film studio, Showtime, etc.) of Paramount are less relevant |
| — | AMC Networks is similar in certain respects to the cable networks business within Networks as
the majority of its revenue is derived from distribution fees from AMC’s MVPD and vMVPD partners that distribute its networks
including ABC, BBC AMERICA and other networks |
| ● | AMC Networks is less relevant to Networks in that it does not operate a traditional broadcast network |
| — | Prior to the acquisition of Warner Media, Discovery is similar in certain respects to the cable
networks business within Networks as a portion of Discovery's revenue is from distribution fees from Discovery's MVPD and vMVPD
partners |
| ● | Post Warner Media acquisition, Discovery is less relevant given its premium subscription, cable, film studio and other assets |
Strictly Private
and Confidential
Selected
Publicly Traded Companies Analysis
Networks:
Discussion of Selected Publicly Traded Companies (Cont’d)
| ▪ | Moelis also reviewed six publicly traded companies within the TV broadcasting industry that it deemed less relevant for purposes
of this analysis |
| — | Network’s business model differs from the other selected TV broadcasters given that Networks
broadcast business owns its own networks (WAPA PR) whereas the other selected TV broadcasters pay fees to their affiliated Network
(CBS, Fox, etc.) in exchange for programming |
| — | Nexstar, Sinclair, TEGNA, Gray Television, EW Scripps and Entravision derive the vast majority
of their revenue from TV broadcasting operations; each individual television station is affiliated with a third-party network (e.g.,
Fox, NBC) |
| ● | The majority of their network affiliations are on ABC, CBS, NBC and Fox TV networks |
| ● | The Big Four networks have greater distribution, higher ratings, earn higher retransmission fees
from distributors and command higher CPMs than Non-Big Four networks such as CW and MyTV |
| ▪ | Moelis focused on forward EBITDA multiples for diversified media and networks companies |
| ▪ | Moelis focused on two-year average EBITDA multiples for the TV Broadcasting companies (due to
the even calendar year impact of political advertising revenue) |
| — | We note this approach is consistent with leading Wall
Street research analysts who cover the TV broadcasting industry |
| ▪ | Moelis selected a range of multiples from the selected publicly traded companies analysis and
applied the multiples to the Company’s 2022E and 2023E EBITDA to calculate enterprise value |
| — | Moelis primarily utilized the diversified media companies that operate both broadcast and cable
networks (primarily Fox, and also Paramount) in the determination of its multiples given they are more relevant since their business
model more closely aligns with Hawkeye |
| — | Unlike the select publicly traded broadcasters, Hawkeye earns a relatively small portion of
its revenue from political (~2.5% in 2020A) and therefore forward EBITDA as opposed to a blend of forward and historical EBITDA
was appropriate (as is used for the broadcasters as discussed above) |
| ▪ | Based on the above and its professional judgement, Moelis selected a reference range of 5.75x
– 6.75x 2022E Networks Adj. EBITDA and 5.5x – 6.5x 2023E Networks Adj. EBITDA |
Strictly
Private and Confidential
Selected
Publicly Traded Companies Analysis
Detail
– Diversified Media & Networks
| (Figures
in $ millions) |
Hawkeye
(Networks) |
 |
 |
 |
 |
| |
|
|
|
|
|
| Valuation
Metrics |
|
|
|
|
|
| |
|
|
|
|
|
| Total
Enterprise Value |
|
$93,433 |
$30,688 |
$20,959 |
$3,727 |
| Equity
Value |
|
43,072 |
18,426 |
19,050 |
1,452 |
| TEV
/ 2022E Metrics |
|
|
|
|
|
| EBITDA
Post-SBC |
|
8.8x |
8.3x |
6.3x |
6.0x |
| EBITDA
Post-SBC (excl. SVOD losses) |
|
7.6x |
5.9x |
6.3x |
5.8x |
| TEV
/ 2023E Metrics |
|
|
|
|
|
| EBITDA
Post-SBC |
|
6.7x |
9.4x |
6.1x |
6.2x |
| EBITDA
Post-SBC (excl. SVOD losses) |
|
6.7x |
6.1x |
6.1x |
5.9x |
| Net
Debt / 2022E EBITDA |
|
4.6x |
3.5x |
1.2x |
3.1x |
| |
|
|
|
|
|
| Projected
Operating Metrics |
|
|
|
|
|
| ‘21A
- ‘23E Revenue CAGR % |
2.8% |
6.3% |
6.2% |
4.9% |
2.6% |
| ‘21A
- ‘23E Post-SBC EBITDA CAGR % |
(1.2%) |
15.2% |
(14.3%) |
7.2% |
(7.8%) |
| 2022E
Post-SBC EBITDA Margin % |
38.1% |
22.2% |
12.2% |
23.4% |
19.6% |
2022E
Post-SBC
EBITDA (excl. SVOD losses) Margin % |
38.1% |
25.6% |
17.1% |
23.4% |
20.4% |
| Source: | Company
filings, Wall Street research, Press releases |
| Note: | Market
data as of 05/06/2022 |
| 1. | Pro
forma balance sheet figures from most recent public filing reflecting 12/31/2021 |
| 2. | CY2023E
EBITDA and revenue reflects consensus estimates calendarized (average of FY2023E and
FY2024E estimates 6/30 fiscal year end) |
Strictly
Private and Confidential
Selected
Publicly Traded Companies Analysis
Comparison
of Selected Publicly Traded Diversified Media & Networks Companies
Analysis
below compares operating metrics of selected publicly traded media networks companies
2022E
EBITDA MARGIN (PRE-SVOD LOSSES)
2022E
EBITDA MARGIN (POST-SVOD LOSSES)
2021A-2023E
REVENUE CAGR (%)
| Source: | Company
filings, Wall Street research, Capital IQ |
| Note: | Market
data as of 05/06/2022 |
Strictly
Private and Confidential
Selected
Publicly Traded Companies Analysis
Detail
– Broadcasters
| (Figures
in $ millions) |
Hawkeye
(Networks) |
 |
 |
 |
 |
 |
 |
| |
|
|
|
|
|
|
|
| Valuation
Metrics |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
| Total
Enterprise Value |
|
$13,136 |
$8,971 |
$7,278 |
$5,203 |
$398 |
$13,749 |
| Equity
Value |
|
6,827 |
1,808 |
3,861 |
1,404 |
398 |
1,719 |
| TEV
/ 2022E Metrics |
|
|
|
|
|
|
|
| 2021A-2022E
Avg. EBITDA Post-SBC |
|
6.4x |
7.7x |
6.8x |
7.8x |
5.0x |
12.1x |
| TEV
/ 2023E Metrics |
|
|
|
|
| 2022E-2023E
Avg. EBITDA Post-SBC |
|
6.1x |
7.5x |
6.3x |
7.8x |
4.7x |
13.6x |
| Net
Debt / 2022E EBITDA |
|
3.4x |
4.7x |
2.9x |
4.7x |
0.0x |
11.4x |
| |
|
|
|
|
|
|
|
| Projected
Operating Metrics |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
| ‘21A
- ‘23E Revenue CAGR % |
2.8% |
5.4% |
5.8% |
6.0% |
6.6% |
14.7% |
3.9% |
| ‘21A
- ‘23E Post-SBC EBITDA CAGR % |
(1.2%) |
4.1% |
0.6% |
9.9% |
0.4% |
5.3% |
(10.4%) |
| 2022E
Post-SBC EBITDA Margin % |
38.1% |
43.1% |
36.6% |
35.5% |
28.1% |
8.6% |
15.9% |
| |
For
Reference Only |
|
| Source: | Company
filings, Wall Street research, Press releases |
| Note: | Market
data as of 05/06/2022; Operating metrics represent a 2-period average (average of t and
t-1) |
| 1. | TEGNA
reflects unaffected price from the day prior to the news of Standard General’s
acquisition (9/14/2021) |
| 2. | Reflects
the book value of Sinclair debt |
Strictly
Private and Confidential
Selected
Publicly Traded Companies Analysis
Streamers: Discussion of
Selected Publicly Traded Companies
Selected
publicly traded companies analysis provides a valuation range based on public market valuations of businesses with operations
and financial characteristics similar in certain respects to the Pelican Business
| ■ | Moelis
selected publicly traded companies which have a significant presence in the subscription
streaming entertainment industries |
| — | Pelican’s
principle business is operating a U.S. Spanish language audience subscription streaming
service |
| ■ | No
single company is substantially similar across a range of key criteria including size
of the company, EBITDA margin, growth profile, financial leverage, target demographic
and business model |
| ■ | Moelis
selected seven publicly traded subscription streaming entertainment companies that it
deemed relevant for purposes of this analysis |
| — | Curiosity
Stream, Netflix, FuboTV, Spotify, Roku, SiriusXM and Chicken Soup for the Soul were chosen
for the similarity of their business models to Pelican’s |
| — | Curiosity
Stream is relevant to our analysis of Pelican given its business model derives substantially
all of its revenue from monthly membership fees for services related to streaming video
content to its members |
| ● | Curiosity
Stream is also more similar to Pelican than other Streamers in terms of scale, growth
profile and profitability |
| — | Netflix
is relevant to our analysis of Pelican given its business model derives substantially
all of its revenue from monthly membership fees for services related to streaming video
content to its members; on the other hand, Netflix is significantly larger than Pelican
and is highly profitable, whereas Pelican is expected to generate losses for the next
few years |
| ● | Netflix
has a superior business and financial profile compared to Pelican given its scale, profitability
and global subscriber base |
| — | FuboTV
is similar in certain respects to Pelican given its business model derives substantially
all of its revenue from subscription fees from its subscribers |
| ● | FuboTV
is less relevant to our analysis of Pelican in that its business model operates as a
virtual MVPD offering its subscribers access to content from third parties (e.g., ESPN).
FuboTV also monetizes its audience through its digital advertising offerings (whereas
Pelican primarily generates revenue from subscriber fees) |
Strictly
Private and Confidential
Selected
Publicly Traded Companies Analysis
Streamers:
Discussion of Selected Publicly Traded Companies (Cont’d)
| — | Chicken
Soup for the Soul Entertainment is relevant to Pelican in that it operates streaming
video-on-demand networks |
| ● | Chicken
Soup is less relevant in that it owns a variety of ad-supported in addition to subscription
based-VOD networks. Chicken Soup is also profitable whereas Pelican is expected to generate
losses for the next few years |
| — | Spotify
is similar in certain respects to Pelican given its business model derives substantially
all of its revenue from subscription fees from its subscribers |
| ● | Spotify’s
product offering is different in that it primarily offers streaming audio, as compared
to Pelican which is a streaming video product |
| — | Roku
is similar in certain respects to Pelican given a large part of its business derives
revenue from subscription fees from its subscribers |
| ● | Roku
is less relevant to our analysis of Pelican in that it derives a material amount revenue
from hardware sales and has a business model that operates as a connected TV and AVOD
platform (whereas Pelican primarily generates revenue from subscriber fees) |
| — | SiruisXM
is similar in certain respects to Pelican given its business model derives substantially
all of its revenue from subscription fees from its subscribers |
| ● | Spotify
is less relevant to our analysis of Pelican in that it offers its subscribers primarily
streaming audio content as compared to streaming video on Pelican |
| ■ | Based
on the above and its professional judgement, Moelis selected a reference range of 0.75x
– 1.75x 2022E Pelican revenue and 0.5x – 1.5x 2023E Pelican revenue |
Strictly
Private and Confidential
Selected
Publicly Traded Companies Analysis
Detail
– Streaming Services
| (Figures
in $ millions) |
Pelican |
 |
 |
 |
 |
 |
 |
 |
| |
| Valuation
Metrics |
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
| Total
Enterprise Value |
|
$89,014 |
$33,748 |
$17,904 |
$11,892 |
$539 |
$226 |
$20 |
| Equity
Value |
|
80,400 |
24,515 |
20,392 |
14,038 |
516 |
150 |
111 |
| TEV/2022E
Metrics |
|
|
|
|
|
|
|
|
| Revenue |
|
2.7x |
3.7x |
1.5x |
3.2x |
0.5x |
1.5x |
0.2x |
| EBITDA
Post-SBC |
|
13.4x |
12.6x |
n/m |
n/m |
n/m |
9.1x |
n/m |
| TEV/2023E
Metrics |
|
|
|
|
|
|
|
|
| Revenue |
|
2.5x |
3.6x |
1.3x |
2.5x |
0.3x |
1.2x |
0.1x |
| EBITDA
Post-SBC |
|
11.8x |
11.9x |
n/m |
n/m |
n/m |
6.6x |
n/m |
| Net
Debt / 2022E EBITDA |
|
1.2x |
3.5x |
n/m |
n/m |
n/m |
0.7x |
n/m |
| |
|
|
|
|
|
|
|
|
| Projected
Operating Metrics |
| |
|
|
|
|
|
|
|
|
| ‘21A
- ‘23E Revenue CAGR % |
61.5% |
9.4% |
4.5% |
13.8% |
31.7% |
55.6% |
25.4% |
39.2% |
| ‘21A
- ‘23E Post-SBC EBITDA CAGR % |
n/m |
12.3% |
5.0% |
n/m |
n/m |
n/m |
34.3% |
n/m |
| 2022E
Post-SBC EBITDA Margin % |
(37.3%) |
20.5% |
29.6% |
(1.2%) |
(2.7%) |
(42.8%) |
16.8% |
(63.4%) |
| Source: | Company
filings, Wall Street research, Press releases |
| Note: | Market
data as of 05/06/2022 |
| 1. | PF
for acquisition of 1091 Pictures |
| 2. | Perpetual
preferred equity included at redemption value |
Strictly
Private and Confidential
Selected
Publicly Traded Companies Analysis
Streaming
Services Valuation in Context (Time of Pelican Acquisition vs. Today)
Since
Hawkeye’s acquisition of the remainder of Pelican in March 2021, publicly traded streaming companies have experienced significant
multiple compression
| VALUATION
AS DATE 3/31/21 (PELICAN ACQUISITION) |
|
CURRENT VALUATION |
| |
EV / NTM Revenue |
|
|
EV
/ NTM Revenue |
| Trailing |
As
of |
|
|
Trailing |
As
of |
| 3
Months |
3/31/2021 |
|
|
3
Months |
5/6/2022 |
| Netflix,
Inc. |
8.5x |
8.0x |
|
Netflix,
Inc. |
5.8x |
2.8x |
| Sirius
XM |
4.3x |
4.1x |
|
Sirius
XM |
4.0x |
3.7x |
| Spotify |
6.4x |
5.3x |
|
Spotify |
2.7x |
1.5x |
| fuboTV |
7.4x |
7.2x |
|
fuboTV |
1.5x |
0.5x |
| Roku |
19.4x |
16.1x |
|
Roku |
5.7x |
2.9x |
| Chicken
Soup |
4.2x |
4.7x |
|
Chicken
Soup |
1.5x |
1.3x |
| CuriosityStream |
12.1x |
9.6x |
|
CuriosityStream |
1.2x |
0.3x |
| |
|
|
|
|
|
|
| Median |
7.4x |
7.2x |
|
Median |
2.7x |
1.5x |
| |
|
|
|
|
|
|
Memo:
Hawkeye acquisition of Pelican
|
3.6x |
|
Delta
vs. 3/31/2021 |
(4.7x) |
(5.7x) |
| |
|
|
|
Curiosity
Stream |
1.2x |
0.3x |
| |
|
|
|
Delta
vs. 3/31/2021 |
(10.8x) |
(9.3x) |
| Source: | Capital
IQ as of 05/06/2022 |
Strictly
Private and Confidential
Selected
Publicly Traded Companies Analysis
Comparison
of Selected Publicly Traded Streaming Companies
Analysis
below compares operating metrics of selected publicly traded streaming companies
2021A-2023E
REVENUE CAGR (%)
2022E
EBITDA MARGIN
2022E
MONTHLY CHURN
| Source: | Company
filings, Wall Street research, Capital IQ |
| Note: | Market
data as of 05/06/2022 |
Strictly
Private and Confidential
C.
Preliminary Selected Precedent
Transactions Analysis
Strictly
Private and Confidential
Selected
Precedent Transactions Analysis
Summary
Analysis
reflects implied enterprise value to Adj. EBITDA multiples and implied enterprise value to Revenue multiples for Networks and
Pelican, respectively, based on precedent transaction trading multiples of companies deemed generally relevant by Moelis in certain
respects to Hawkeye for purposes of this analysis
| |
|
|
|
|
|
Multiple
Range |
|
Enterprise
Value |
| Segment |
|
Metric |
|
Value |
|
Low |
- |
High |
|
Low |
- |
High |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Networks |
|
LTM EBITDA
(Post-SBC)
as of 3/31/2022 |
|
$60.1 |
|
6.0x |
- |
8.0x |
|
$361 |
- |
$481 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Pelican |
|
LTM Revenue
as of 3/31/2022 |
|
$56.3 |
|
3.0x |
- |
4.0x |
|
$169 |
- |
$225 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Total Enterprise Value |
|
|
$529 |
|
$706 |
| Less: Net Debt (as of 3/31/22) 1 |
|
|
(214) |
|
(214) |
| Add: Other (as of 3/31/22) 1 |
|
|
21 |
|
21 |
| Total Equity Value |
|
|
$336 |
|
$512 |
| Fully Diluted Shares Outstanding (as of 3/31/22) 1 |
|
|
40.437 |
|
40.825 |
| Implied Equity Value per Share |
|
|
$8.31 |
|
$12.55 |
| Source: |
Hawkeye Management |
| 1. |
See page 69 for further detail |
Strictly
Private and Confidential
Selected
Precedent Transactions Analysis
Networks:
Methodology & Assumptions
Analysis
reflects implied enterprise value to EBITDA multiples paid in selected precedent transactions deemed generally relevant by Moelis
in certain respects to Hawkeye for purposes of this analysis
| |
■ | Moelis selected precedent transactions in the networks and TV broadcasting industry |
| |
■ | However, no single transaction is similar across a range of key criteria including |
| — | Transaction value / relative size |
| — | Business model (including revenue mix from broadcast network
operations, cable networks and other media assets) |
| |
■ | Moelis selected 10 transactions in the diversified media and networks industry
and 13 transactions in the TV Broadcasting industry since 2016 and focused primarily on the transactions with an enterprise value
less than $1 billion given the scale of Hawkeye’s Networks business |
| |
■ | Moelis selected a range of multiples from the selected precedent transactions
analysis and applied the multiples to the Networks LTM Adj. EBITDA to calculate enterprise value |
| — | Moelis selected a multiple range of 6.0x to 8.0x based
on the selected precedent transactions and was applied to Networks LTM Adj. EBITDA as of 3/31/22 |
| — | Unlike the publicly traded broadcasters, Networks earns
a relatively small portion of its revenue from political (~2.5% in 2020A) and therefore LTM EBITDA as opposed to blended two-year
average EBITDA was appropriate |
| — | The transactions in the networks industry are relevant
to our analysis given the similarity to the cable networks business within Hawkeye Networks |
| ● | MSGN’s acquisition by MSGE is relevant to our analysis
as MSGN was a targeted cable network (New York sports) in the U.S. with a similar growth profile to the Hawkeye cable networks |
| — | The broadcaster transactions are relevant to our analysis
given the similarity to the broadcast assets within Hawkeye Networks |
| ● | Moelis notes that all of the broadcaster transactions
involved strategic acquirers that expected to achieve significant levels of synergies which are unlikely to be present in an acquisition
of Hawkeye |
Strictly
Private and Confidential
Selected
Precedent Transactions Analysis
Select
Networks Precedent Transactions
NETWORKS
| Announced |
Target |
Acquiror |
TEV
($mm) |
TEV
/
LTM EBITDA |
| Apr-21 |
Grupo Televisa (Content Assets) |
Univision |
$4,800 |
7.8x1 |
| Mar-21 |
MSGN |
MSGE |
1,7652 |
5.9x |
| Dec-20 |
Oprah Winfrey Network |
Discovery Communications |
4783 |
5.7x |
| Aug-19 |
Viacom |
CBS Corporation |
19,552 |
6.6x |
| Mar-18 |
The Weather Channel |
Allen Media |
977 |
6.9x4 |
| Jul-17 |
Scripps Networks |
Discovery Communications |
14,260 |
9.9x |
| Jul-17 |
Home Shopping Network |
QVC |
2,594 |
9.8x |
| Jun-16 |
Starz |
Lions Gate |
4,400 |
10.9x |
| Mar-16 |
Crown Media Holdings |
Hallmark Cards, Inc. |
2,088 |
10.1x |
| Jan-16 |
Tennis Channel |
Sinclair |
3505 |
16.2x |
| |
|
|
|
|
| Overall Mean |
|
$5,126 |
9.0x |
| Overall
Median |
|
$2,341 |
8.8x |
| Source: |
Company filings, Wall Street
research, Press releases |
| 1. |
Reflects operating income from content assets;
USD to MXN FX rate as of transaction announcement date (20.061x) |
| 2. |
Assumes implied transaction value based on the
MSGE closing price the day prior to the transaction (0.172x exchange ratio) |
| 3. |
Grossed-up amount shown based on $100mm in total
consideration for an incremental 21.0% equity stake in the Oprah Winfrey Network LLC from Harpo that Discovery did not already
own |
| 4. |
Estimated
EBITDA per SNL Kagan
|
| 5. |
Does
not include ~$65mm adjustment for savings from present value of Tennis Channel net operating losses
|
Strictly
Private and Confidential
Selected
Precedent Transactions Analysis
Broadcasting
Precedent Transactions
BROADCASTERS
| |
|
|
|
TEV / |
| Announced |
Target |
Acquiror |
TEV ($mm) |
L8Q AVG. EBITDA |
| Feb-22 |
TEGNA |
Standard General |
$8,605 |
8.8x |
| Jun-21 1 |
Meredith |
Gray Television, Inc. |
2,825 |
9.9x |
| Sep-20 |
ION Media |
E.W. Scripps Company |
2,650 |
8.6x2 |
| Jun-19 |
Dispatch (2 Stations) |
TEGNA |
535 |
7.9x3 |
| Mar-19 |
Nextsar (8 Stations)4 |
E.W. Scripps Company |
580 |
10.4x |
| Mar-19 |
Nextsar (11 Stations) 4 |
TEGNA |
740 |
12.0x |
| Dec-18 |
Tribune Media |
Nexstar Broadcast Group |
6,400 |
9.2x |
| Oct-18 |
Cordillera (15 Stations) 4 |
E.W. Scripps Company |
521 |
9.8x |
| Aug-18 |
Gray (2 Stations) 4 |
TEGNA |
105 |
5.9x3 |
| Jun-18 |
Raycom Media, Inc. |
Gray Television, Inc. |
3,660 |
9.5x |
| Dec-17 |
Midwest Television Inc.4 |
TEGNA |
325 |
6.6x3 |
| Apr-17 |
Bonten Media Group |
Sinclair Broadcast Group |
240 |
6.7x3 |
| Jan-16 |
Media General |
Nexstar Broadcast Group |
4,115 |
9.1x |
| Overall Mean |
|
$2,408 |
8.8x |
| Overall Median |
|
$740 |
9.1x |
| Source: |
Company
filings, Wall Street research, Press releases |
| 1. |
Revised bid date, initial
announcement was on 5/3/2021 |
| 2. |
Reflects average of
LTM 6/30/2020 and 2019A EBITDA |
| 3. |
Includes pro forma synergies |
| 4. |
Asset deal |
Strictly
Private and Confidential
Selected
Precedent Transactions Analysis
Pelican:
Methodology & Assumptions
Analysis
reflects implied enterprise value to revenue multiples paid in selected precedent transactions deemed generally relevant by Moelis
in certain respects to Pelican for purposes of this analysis
| |
■ | Moelis selected precedent transactions in the streaming subscription video |
| |
■ | With the exception of Hawkeye’s April 2021 acquisition of the 75% of Pelican it did not
previously own, no single transaction is similar across a range of key criteria including |
| — | Transaction value / relative size |
| |
■ | Moelis selected 4 transactions in the streaming video industry since 2016 with a focus on transactions
under $350mm given Pelican’s scale |
| |
■ | Moelis selected a range of multiples from the selected precedent transactions
analysis and applied the multiples to Pelican’s LTM revenue to calculate enterprise value |
| |
■ | In its analysis of Pelican, Moelis placed less weight on the selected precedent
transactions analysis for Pelican’s valuation, given limited relevant benchmarks and the recent significant change in market
sentiment towards SVOD platforms (see slide 40) |
| |
■ | Moelis selected a multiple range of 3.0x to 4.0x based on the selected precedent
transactions and was applied to Pelican’s LTM Revenue as of 3/31/22 |
| — | Moelis notes the most relevant transaction to Pelican is
the March 2021 acquisition by Hawkeye of the 75% of Pelican that it did not own |
Strictly
Private and Confidential
Selected
Precedent Transactions Analysis
Select
Streaming Precedent Transactions
STREAMERS
| Announced |
Target |
Acquiror |
TEV ($mm) |
TEV /
LTM Revenue |
| Apr-21 |
Pantaya |
Hemisphere Media Group |
$165 |
3.6x |
| Jan-19 |
PlutoTV |
Viacom |
340 |
3.4x1 |
| Jul-18 |
Acorn (RLJ) |
AMC Networks |
274 |
2.9x |
| Jul-17 |
Funimation |
Sony |
151 |
1.5x1 |
| |
|
|
|
|
| Overall
Mean |
$232
|
2.9x |
| Overall
Median |
$220
|
3.2x |
| Source: |
Company filings, Wall Street
research, Press releases |
| 1. |
Approximate revenue figure reported in the press |
Strictly
Private and Confidential
Strictly
Private and Confidential
WACC
Analysis - Networks
Overview
of Preliminary Networks WACC Analysis
Reference
range of 8.25% - 10.50% discount rate derived from WACC calculation as described below
| ■ | Networks
WACC calculation based on range of: |
| — | Risk-free
rate based on the 20-year U.S. Treasuries yield of 3.43% as of 05/06/2022 |
| — | Equity
risk premium of 6.22% represents the supply-side long-horizon expected equity risk premium1 |
| — | Unlevered
beta range of 0.525 to 0.725 based on Diversified Media & Networks and Broadcasters
companies’ unlevered 2-year weekly and 5-year monthly Bloomberg adjusted betas |
| ● | ViacomCBS
and Fox Corporation’s 5 year betas were excluded because of significant M&A
activity within the last 5 years; specifically Viacom and CBS’s merger in 2019
and Fox Corporation’s spin-off from 21st Century Fox in 2019 |
| ● | Sinclair’s
beta is less relevant given its highly levered capital structure and the impact of debt
overhang from its Diamond Sports subsidiary on its equity trading |
| ● | Gray’s
unlevered beta is calculated using trading information and capital structure as of May
2021, prior to the announcement their acquisition of Meredith’s Local Media Group,
which significantly transformed their business and capital structure |
| ● | Tegna’s
unlevered beta is calculated using trading information as of February 22, 2022, 1 day
prior to the announcement of its sale to Standard General |
| — | Target
debt-to-total capitalization ratio of 25% to 65% based on capitalization of select publicly
traded companies |
| — | Cost
of debt estimated to be 7.25% before tax informed by the following reference ranges: |
| ● | 20-year
risk-free rate, plus the: |
| − | Spread
of 3.99%, calculated based on the ICE BofA US High Yield Index Effective Yield of 7.02%
and the 7-year risk-free rate of 3.13% as of 05/06/2022 |
| ● | Yield-to-worst
on Hawkeye’s existing debt |
| − | $213mm
Senior Secured Term Loan B due February 2024 YTW @ 6.03% |
| − | $50mm
Senior Secured Term Loan B Add-On due February 2024 YTW @ 4.56% |
| — | Cash
tax rate of 30.5% consistent with Hawkeye Management assumptions in the projections for
the Networks business |
| — | Size
premium of 3.31% based on 10a decile as provided by Kroll1, based on companies
with equity values of $190.49 million to $289.1 million |
| |
Source: | Bloomberg,
Capital IQ, U.S. Department of the Treasury, company filings, Kroll (formerly known as
Duff & Phelps) and S&P. Market data as of 05/06/2022 |
| |
1. | Kroll
(formerly known as Duff & Phelps) 2021 Year End Cost of Capital Navigator |
Strictly
Private and Confidential
WACC
Analysis - Networks
| | |
Levered Beta ¹ | |
| |
Total | |
Debt / | |
Unlevered Beta ² |
| ($ in millions, except per share
data) | |
2-Year | |
5-Year | |
Equity | |
Debt | |
Cap | |
2-Year | |
5-Year |
| | |
| |
| |
| |
| |
| |
| |
|
| Diversified Media & Networks | |
| |
| |
| |
| |
| |
| |
|
| | |
| |
| |
| |
| |
| |
| |
|
| Paramount 3 | |
1.083 | |
NM | |
$18,426 | |
$18,945 | |
50.7% | |
0.631 | |
NA |
| Fox Corporation 4 | |
0.738 | |
NM | |
19,050 | |
7,673 | |
28.7% | |
0.577 | |
NA |
| Discovery 5 | |
0.998 | |
1.248 | |
22,061 | |
15,026 | |
40.5% | |
0.677 | |
0.847 |
| AMC Networks | |
1.189 | |
0.977 | |
1,452 | |
2,893 | |
66.6% | |
0.498 | |
0.409 |
| Diversified Media Mean | |
1.002 | |
1.112 | |
| |
| |
46.6% | |
0.596 | |
0.628 |
| Diversified Media Median | |
1.040 | |
1.112 | |
| |
| |
45.6% | |
0.604 | |
0.628 |
| | |
| |
| |
| |
| |
| |
| |
|
| Broadcasters | |
| |
| |
| |
| |
| |
| |
|
| | |
| |
| |
| |
| |
| |
| |
|
| Sinclair | |
1.304 | |
1.215 | |
$1,719 | |
$13,102 | |
88.4% | |
0.207 | |
0.193 |
| Nexstar | |
1.226 | |
1.355 | |
6,827 | |
7,598 | |
52.7% | |
0.691 | |
0.764 |
| Tegna 6 | |
1.107 | |
1.014 | |
3,861 | |
3,557 | |
48.0% | |
0.675 | |
0.618 |
| Gray 7 | |
1.443 | |
1.705 | |
1,912 | |
4,035 | |
67.9% | |
0.585 | |
0.691 |
| Entravision | |
1.656 | |
0.899 | |
398 | |
213 | |
34.9% | |
1.206 | |
0.655 |
| E.W. Scripps | |
1.643 | |
1.499 | |
1,404 | |
3,240 | |
69.8% | |
0.631 | |
0.576 |
| Broadcasters Mean | |
1.397 | |
1.281 | |
| |
| |
60.3% | |
0.666 | |
0.583 |
| Broadcasters Median | |
1.374 | |
1.285 | |
| |
| |
60.3% | |
0.653 | |
0.637 |
| | |
| |
| |
| |
| |
| |
| |
|
| Aggregate Mean | |
1.239 | |
1.239 | |
| |
| |
54.8% | |
0.638 | |
0.594 |
| Aggregate Median | |
1.208 | |
1.231 | |
| |
| |
51.7% | |
0.631 | |
0.637 |
| | |
| |
| |
| |
| |
| |
| |
|
| Hawkeye | |
1.323 | |
1.110 | |
$152 | |
$251 | |
62.3% | |
0.616 | |
0.517 |
KEY
ASSUMPTIONS
| ■ | Historical
long-horizon equity risk premium (supply-side) of 6.22% (Source: Kroll 2021 Year End Cost of Capital Navigator) |
| ■ | Yield
of 20-year U.S. Treasuries of 3.43% (as of 05/06/2022) |
| ■ | Size
premium of 3.31% based on 10a decile as provided by Kroll, based on companies with equity values of $190.49 million to $289.1
million |
| ■ | Target
debt-to-total capitalization ratio of 25% to 65% based on capitalization of select publicly traded companies |
WACC
SENSITIVITY
| |
Source: |
Bloomberg, Capital IQ, U.S. Department of the
Treasury, company filings, Kroll (formerly known as Duff & Phelps) and S&P. Market data as of 05/06/2022 |
| |
1. |
Median unlevered adjusted beta of Selected Public
Companies used to calculate relevered beta using the formula B = Bu(1+(1-t)(D/E)); 2-year and 5-year betas
unlevered using 2-year and 5-year average effective tax rates, respectively |
| |
2. |
Assumes 30.5% effective tax rate based on Hawkeye
Management guidance |
| |
3. |
Represents beta for Paramount Class B Common
Stock for period beginning 12/4/2019 (date of CBS merger completion) |
| |
4. |
Represents beta for Fox Corporation Class A Common
Stock for period beginning 3/19/2019 (date of Disney acquisition close); capital structure is PF for transaction |
| |
5. |
Represents beta and capital structure for Discovery
Communications Class A Common Stock for period ending 5/14/2021 (1 day prior to WarnerMedia merger announcement) |
| |
6. |
Represents beta for Tegna Class A Common Stock
for period ending 2/22/2022 (1 day prior to Standard General merger announcement) |
| |
7. |
Represents beta and capital structure for Gray
Television Common Stock for period ending 5/2/2021 (1 day prior to Meredith acquisition announcement) |
Strictly
Private and Confidential
WACC Analysis - Pelican
Overview of Preliminary Pelican WACC Analysis
Reference
range of 15.00% - 23.00% discount rate derived from WACC calculation as described below
| ■ | To
estimate Pelican’s cost of capital, we reviewed research on cost of equity capital for privately-held businesses per a Pepperdine
University report, and prepared a cost of capital analysis using the CAPM |
| — | Our
range of 15.00% - 23.00% is informed by the high end of our CAPM analysis (at the low end of our range) and by research on the
cost of equity for privately-held businesses (at the high end of our range) 1 |
| ■ | Forecast
negative cash flows through 2026, uncertainty on the amount of content investment required to attract new subs, and the unproven,
nascent nature of the streaming business model to generate long-term profits all create significant risk to the Pelican achieving
its forecast, which supports utilizing venture capital rates of return in our discount rate range |
| ■ | The
median rate of return for Late Stage Venture Capital investments is 23.0%1 |
| — | Given
Pelican’s existing subscriber base and the revenue it generates currently, we believe the return for a late stage venture
capital investment to be relevant to our WACC analysis |
| ■ | Pelican’s
WACC calculation based on a range of: |
| — | Risk-free
rate based on the 20-year U.S. Treasuries yield of 3.43% as of 05/06/22 |
| — | Unlevered
beta range of 0.900 to 1.400 based on the SVOD / Streaming Companies’ 2-year (weekly adjusted) and 5-year (monthly adjusted)
betas: |
| ● | fuboTV
and CuriosityStream’s 5 year beta were excluded from the analysis because both companies began trading in October 2020 |
| — | Cash
tax rate of 24.0% during projection period and terminal year consistent with Hawkeye Management assumptions |
| — | Total
debt / total capitalization of 0% is informed by the SVOD / Streaming Companies and Pelican’s expected cash flow profile |
| — | Equity
risk premium of 6.22% represents the supply-side long-horizon expected equity risk premium2 |
| — | Size
premium of 3.31% based on 10a decile as provided by Kroll1, based on companies with equity values of $190.49 million
to $289.01 million |
| |
Source: |
Bloomberg, Capital
IQ, U.S. Department of the Treasury, company filings, Kroll (formerly known as Duff & Phelps) and S&P. Market data
as of 05/06/2022 |
| |
1. |
2021 Private Capital
Markets Report (Pepperdine University) |
| |
2. |
Kroll (formerly known
as Duff & Phelps) 2021 Year End Cost of Capital Navigator |
Strictly
Private and Confidential
WACC Analysis - Pelican
| | |
Levered
Beta ¹ | |
| |
Total | |
Debt
/ | |
Unlevered
Beta ² |
| ($
in millions, except per share price) | |
2-Year | |
5-Year | |
Equity | |
Debt | |
Cap | |
2-Year | |
5-Year |
| | |
| |
| |
| |
| |
| |
| |
|
| SVOD
/ Streaming | |
| |
| |
| |
| |
| |
| |
|
| Netflix | |
1.311 | |
1.186 | |
$80,400 | |
$14,623 | |
15.4% | |
1.152 | |
1.042 |
| Spotify | |
1.457 | |
1.535 | |
20,392 | |
1,259 | |
5.8% | |
1.392 | |
1.466 |
| Sirius XM | |
0.913 | |
0.971 | |
24,515 | |
9,844 | |
28.7% | |
0.699 | |
0.744 |
| fuboTV | |
1.250 | |
NA | |
516 | |
409 | |
44.2% | |
0.780 | |
NA |
| Chicken Soup for The
Soul | |
1.265 | |
1.252 | |
150 | |
67 | |
31.0% | |
0.943 | |
0.934 |
| Roku | |
1.769 | |
1.620 | |
14,038 | |
89 | |
0.6% | |
1.761 | |
1.612 |
| CuriosityStream | |
1.430 | |
NA | |
111 | |
-- | |
0.0% | |
1.430 | |
NA |
| SVOD
/ Streaming Mean | |
1.342 | |
1.313 | |
| |
| |
17.9% | |
1.165 | |
1.160 |
| SVOD
/ Streaming Median | |
1.311 | |
1.252 | |
| |
| |
15.4% | |
1.152 | |
1.042 |
KEY ASSUMPTIONS
| ■ | Historical
long-horizon equity risk premium (supply-side) of 6.22% (Source: Kroll 2021 Year End
Cost of Capital Navigator) |
| ■ | Yield
of 20-year U.S. Treasuries of 3.43% (as of 05/06/2022) |
| ■ | Size
premium of 3.31% based on 10a decile as provided by Kroll, based on companies with equity
values of $190.49 million to $289.1 million |
| ■ | Total
debt / total capitalization of 0% is informed by the SVOD / Streaming Companies and Pelican’s
expected cash flow profile |
WACC
SENSITIVITY @ DEBT / TOTAL CAP OF 0%
| Unlevered Beta |
|
| 0.900 | |
1.067 | |
1.233 | |
1.400 |
|
| 12.34% | |
13.37% | |
14.41% | |
15.45% |
|
| Source: | Bloomberg,
Capital IQ, U.S. Department of the Treasury, company filings, Kroll (formerly known as
Duff & Phelps) and S&P. Market data as of 05/06/2022 |
| 1. | Median
unlevered adjusted beta of Selected Public Companies used to calculate relevered beta
using the formula B = Bu(1+(1-t)(D/E)); 2-year and 5-year betas unlevered
using 2-year and 5-year average effective tax rates, respectively |
| 2. | Assumes
24.0% effective tax rate based on Hawkeye Management guidance |
Strictly
Private and Confidential
WACC Analysis
Cost of Capital for Privately-held Businesses
Later stage venture capital investments typically require rates of return from 18% (1st quartile) to 38%
(3rd quartile) with a median of 23%; given Pelican’s existing subscriber base and the revenue it generates currently, we
believe the return for a late stage venture capital investment to be relevant to our WACC analysis
PRIVATE
CAPITAL MARKET REQUIRED RATES OF RETURN
| Capital
Type |
Size |
|
1st
Quartile |
|
Median |
|
3rd
Quartile |
|
|
Capital
Type |
Size |
|
1st
Quartile |
|
Median |
|
3rd
Quartile |
| Bank |
$1mm
Loan |
|
5.0% |
|
5.5% |
|
6.0% |
|
|
Private
Equity |
$1mm
EBITDA |
|
- |
|
- |
|
- |
| $5mm
Loan |
|
3.9% |
|
4.3% |
|
4.8% |
|
|
$5mm
EBITDA |
|
25.5% |
|
30.0% |
|
31.5% |
| $10mm
Loan |
|
3.9% |
|
4.0% |
|
4.5% |
|
|
$10mm
EBITDA |
|
22.5% |
|
25.0% |
|
27.5% |
| $25mm
Loan |
|
3.8% |
|
4.0% |
|
4.3% |
|
|
$25mm
EBITDA |
|
21.0% |
|
25.0% |
|
27.0% |
| $50mm
Loan |
|
3.0% |
|
3.3% |
|
3.5% |
|
|
$50mm
EBITDA |
|
20.0% |
|
25.0% |
|
25.5% |
Asset-Based
Lending |
$1mm
Loan |
|
15.5% |
|
16.0% |
|
18.5% |
|
|
Venture
Capital |
Seed |
|
33.0% |
|
38.0% |
|
40.0% |
| $5mm
Loan |
|
14.8% |
|
15.5% |
|
16.3% |
|
|
Startup |
|
30.0% |
|
33.0% |
|
40.0% |
| $10mm
Loan |
|
4.4% |
|
8.5% |
|
15.0% |
|
|
Early
Stage |
|
23.0% |
|
30.0% |
|
38.0% |
| $25mm
Loan |
|
3.5% |
|
5.0% |
|
8.0% |
|
|
Expansion |
|
19.0% |
|
25.0% |
|
32.0% |
| $50mm
Loan |
|
3.1% |
|
3.8% |
|
4.4% |
|
|
Later
Stage |
|
18.0% |
|
23.0% |
|
38.0% |
| Mezzanine |
$1mm
Loan |
|
11.5% |
|
14.0% |
|
21.0% |
|
|
Angel |
Seed |
|
33.0% |
|
43.0% |
|
65.0% |
| $5mm
Loan |
|
11.0% |
|
14.0% |
|
17.5% |
|
|
Startup |
|
23.0% |
|
33.0% |
|
50.0% |
| $10mm
Loan |
|
9.5% |
|
12.0% |
|
17.0% |
|
|
Early
Stage |
|
23.0% |
|
28.0% |
|
48.0% |
| $25mm
Loan |
|
8.5% |
|
12.0% |
|
13.0% |
|
|
Expansion |
|
23.0% |
|
25.0% |
|
48.0% |
| $50mm
Loan |
|
8.5% |
|
10.0% |
|
12.0% |
|
|
Later
Stage |
|
18.0% |
|
23.0% |
|
38.0% |
| Source: | 2021
Private Capital Markets Report (Pepperdine University) |
Strictly
Private and Confidential
| E. | Pelican Sale Supplemental Materials
|
Strictly
Private and Confidential
Overview of Pelican Sale Transaction / Consideration
| ● | As
part of Sparrow’s Acquisition Proposal of Hawkeye, Sparrow has entered into an agreement to sell Pelican to Talon for a
package of consideration consisting of cash, tax attributes and a seller note mandatorily exchangeable for either (a) all of Talon’s
existing radio assets (the “Radio Assets”) or (b) 75% of the EBITDA generated by the Radio Assets plus the Radio Programming
Agreement would be terminated and therefore Hawkeye would not be required to make any of the three $5mm annual payments to Talon
pursuant to that agreement |
| – | Cash
consideration: $115mm payable at Closing |
| – | Tax
attributes: Hawkeye advisors forecast that $82mm of net operating losses in Puerto Rico will be transferred at closing (9/30/2022)
with an expected net present value estimated to be between $0.0 – $24.1mm to Hawkeye, net of foreign tax credits |
| – | The
transaction will result in Hawkeye paying Talon a $15mm programing fee split evenly over three years assuming the sale of the
Radio Assets closes 1 |
| – | Additionally,
Hawkeye will not be reimbursed for $7.3mm of content payments that Talon was expected to repay and Hawkeye will absorb a lease
obligation that will run through 2059 and has a PV of between $15.0mm and $22.8mm |
| – | Seller
Note with a face value of $10mm containing the below provisions: |
| ■ | If
FCC approval is granted for the radio stations, the seller note will be exchanged for the radio assets, and no cash will be exchanged |
| ■ | If
FCC approval is not granted for the radio stations, Talon and the Pelican seller will enter into a JSA for 75% of the EBITDA of
the radio assets and the Radio Programming Agreement would be terminated and no payments would be due from Hawkeye to Talon thereunder |
| ● | Any
go-shop buyer will be required to assume the above transaction (i.e., step into Sparrow’s position) as par of its proposal |
| $
in millions |
Illustrative
Pelican Consideration |
| |
|
|
|
| |
Low |
Mid |
High |
| (+) Cash Consideration |
$115.0 |
$115.0 |
$115.0 |
| (+) Radio Assets
@5.0x - 7.0x 2022E Adj. EBITDA of $6.8mm |
34.1 |
40.9 |
47.7 |
| (+) Net Benefit
from PR NOLs (PV)2 |
- |
12.3 |
24.1 |
| (-) 3 Years of Programming
Fee (PV)3 |
(13.6) |
(13.6) |
(13.6) |
| (-) Unreimbursed
Content Payments / License Fee Forgiveness 4 |
(7.3) |
(7.3) |
(7.3) |
| (-)
Incremental Puerto Rico Lease Obligations (PV) 5 |
(22.8) |
(20.0) |
(15.0) |
| Ilustrative
Pelican Consideration |
$105.4 |
$127.3 |
$151.0 |
| Source: | Hawkeye
Management, Talon, 3rd party tax advisors |
| 1. | Assuming
FCC approval is granted |
| 2. | High
end reflects present value of net benefit of Puerto Rican NOLs received less the decrease
in foreign tax credits utilized given the decrease in forecasted taxes paid in Puerto
Rico – discounted at 8.25%; mid-point assumes 51% probability of utilization |
| 3. | Includes
three $5mm payments for programming fees from 2022 to 2024 |
| 4. | Reflects
upfront content funding payments that will not be reimbursed through working capital
and current payment that Talon owes Pelican for content that will be forgiven as a result
of the transaction |
| 5. | Low
end reflects present value of absorbed lease obligations as a result of the transaction,
mid and high end reflects illustrative potential to break the lease before 2059 when
the current contract expires – discounted at 8.25% |
Strictly
Private and Confidential
Overview of the Talon Radio Assets
ASSET
OVERVIEW
| ● | Talon
is currently the owner of a station group in Puerto Rico with reach that extends across the entire island 1 |
| ● | WKAQ
and WUKQ are two of the top ranked radio stations on the Island 2 |
| – | The
AM and FM stations were the first and second stations, respectively, to broadcast on the Island |
| – | The
AM station is currently ranked #1 in the 6AM to 3PM weekday slot for listeners aged 12+, while the FM station is ranked #2 from
10AM to 3PM |
| ● | The
stations have strong EBITDA margins and in 2021 generated $14.2mm of revenue and $6.5mm of Adj. EBITDA |
| ● | Hawkeye
Management believes the assets will be complementary with WAPA PR and could present cross-selling opportunities and potential
synergies with the broadcast network |
| ● | Hawkeye’s
advisors have forecasted that $82mm of NOLs will be available after utilization assuming the transaction closes by 9/30/2022 |
SUMMARY
RADIO P&L
$
in millions
RATINGS
BY DAYPART FOR PERSONS 12+ 1
| Station |
DayPart |
Ranking |
| |
|
|
| |
6A - 10A |
1 |
| WKAQ580 |
10A - 3P |
1 |
| |
3P - 7P |
2 |
| |
|
|
| |
6A - 10A |
8 |
| KQ105 |
10A - 3P |
2 |
| |
3P - 7P |
4 |
| |
Source: |
Talon, Nielsen |
| |
Note: |
|
| |
1. |
The stations cover the entire Island, WKAQ (FM)
covers the eastern half of the island, while WUKQ (FM) covers the western half; for the AM stations, WKAQ covers the northern
part of the island and WUKQ covers the southern part |
| |
2. |
Nielsen ratings as of January 2022 |
Strictly
Private and Confidential
Puerto Rico
Radio Detailed Financial Overview
COMMENTARY
| ● | AM stations accounted for 66% of net revenue in 2021 |
| ● | Local sales account for over 98% of gross revenue |
| ● | 2022 revenue is expected to grow ~2% driven by increased
national and local spend |
| ● | Adj. EBITDA margins have consistently ranged from 40-50%
(2017-2021) |
| ● | Other adjustments include the allocation of costs that
are currently being recognized at another Talon entity, as well as non-recurring costs and insurance normalization |
| ● | Minimal Capex forecasted |
DETAILED P&L
| | |
Actuals | |
Projected |
| $
in millions | |
2017A | |
2018A | |
2019A | |
2020A | |
2021A | |
2022B |
| | |
| | |
| | |
| | |
| | |
| | |
| |
| AM Revenue | |
8.4 | | |
9.3 | | |
8.8 | | |
9.1 | | |
9.5 | | |
8.7 | |
| FM Revenue | |
5.7 | | |
6.8 | | |
5.8 | | |
3.6 | | |
4.7 | | |
5.9 | |
| Total Net Revenue | |
$14.1 | | |
$16.0 | | |
$14.6 | | |
$12.8 | | |
$14.2 | | |
$14.6 | |
| % Growth | |
n/a | | |
13.7% | | |
(9.0% | ) | |
(12.7% | ) | |
11.4% | | |
2.6% | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
| Payroll | |
$5.4 | | |
$5.2 | | |
$5.1 | | |
$5.3 | | |
$5.2 | | |
$5.1 | |
| Other Opex | |
2.7 | | |
2.4 | | |
3.0 | | |
2.4 | | |
2.1 | | |
2.3 | |
| Total Opex | |
$8.1 | | |
$7.6 | | |
$8.1 | | |
$7.6 | | |
$7.3 | | |
$7.5 | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
| Other Adjustments | |
- | | |
- | | |
- | | |
($0.1 | ) | |
($0.4 | ) | |
($0.3 | ) |
| | |
| | |
| | |
| | |
| | |
| | |
| |
| Adjusted
EBITDA | |
$6.0 | | |
$8.4 | | |
$6.5 | | |
$5.0 | | |
$6.5 | | |
$6.8 | |
| Margin % | |
42.4% | | |
52.6% | | |
44.3% | | |
39.4% | | |
45.9% | | |
46.8% | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
| Memo: Capex | |
n/a | | |
$0.1 | | |
$0.2 | | |
$0.1 | | |
$0.4 | | |
$0.2 | |
Strictly Private
and Confidential
Pelican Consideration
in Context – Preliminary Valuation Summary
| Source: |
Hawkeye Management, Wall Street research, Capital
IQ |
| Note: |
Market data as of 05/06/2022; Includes value
attributable to NOLs generated by Pelican |
| 1. |
Discount rate range derived from Networks capital
asset pricing model (“CAPM”) |
Strictly
Private and Confidential
Selected
Publicly Traded Companies Analysis
Radio: Discussion
of Selected Publicly Traded Companies
Selected publicly
traded companies analysis provides a valuation range based on public market valuations of businesses with operations and financial
characteristics similar in certain respects to the Talon Radio Business for the purposes of this analysis
| ■ | Moelis
selected publicly traded companies which have a significant presence in the radio and audio media service sector |
| — | Talon’s Radio Business operates stations in
Puerto Rico |
| ■ | No
single company is substantially similar across a range of key criteria including size of the company, geographic footprint, diversification
across markets and product offerings, EBITDA margin, growth profile, target demographic and business model |
| ■ | Moelis
selected eight publicly traded radio and audio media services companies that it deemed relevant for purposes of this analysis |
| — | iHeartMedia and Audacy are relevant to our analysis
of Talon’s Radio Business given they both operates radio stations |
| ● | iHeartMedia and Audacy are less relevant to our analysis
given their much larger size and scale relative to Talon’s Radio Business, both companies are also diversified across several
operating segments, including a significant footprint in digital audio media and both companies have much larger financial profiles |
| — | Cumulus is relevant to our analysis of Talon’s
Radio Business given its primary operations involve the ownership of radio stations |
| ● | Cumulus is less relevant to our analysis given the
size of its geographic footprint, diversification across program offerings, larger financial profile and its digital marketing
services segment |
| — | Urban One and Salem Media Group are relevant to our
analysis given that they operates radio stations focused on a targeted demographic |
| ● | Urban One and Salem Media Group are less relevant to
our analysis given that they operates through several segments outside of radio, including digital, television and publishing,
the size and scope of its radio stations and larger financial profile |
| — | Townsquare Media is relevant to our analysis given
that it owns and operates radio stations |
| ● | Townsquare Media is less relevant to our analysis given
that it has substantial exposure to digital audio media, subscription services and live events, its radio
business encompasses several hundred markets and has a vastly different financial profile than Talon’s Radio Business |
| — | Beasley Broadcast Group is relevant to our analysis
given that its primary business is operating radio stations |
| ● | Beasley Broadcast Group is less relevant to our analysis
given that it operates across several markets, owns significantly more stations and is diversified beyond radio in the digital
marketing and esports space |
| — | Saga Communications is relevant to our analysis given
its business is solely focused on local radio stations |
| ● | Saga Communications is less relevant to our analysis
given that it owns and operates significantly more radio stations that are diversified across several markets |
Strictly
Private and Confidential
Selected
Publicly Traded Companies Analysis - Radio
Publicly Traded
Companies Analysis
| | |
| |
| |
| |
TEV
/ Post SBC EBITDA | |
21-23E
CAGR | |
CY22E
EBITDA
MARGIN |
| | |
| |
| |
| |
| |
| |
| ($
in millions, except per share data) | |
%
of 52 Week
High | |
Market
Cap | |
Enterprise Value | |
CY22 | |
CY23 | |
Revenue | |
EBITDA | |
 | |
49.6% | |
$2,097 | |
$7,475 | |
7.0x | | |
6.5x | | |
9.2% | | |
20.7% | |
26.2% | |
 | |
46.9% | |
318 | |
2,085 | |
6.7x | | |
6.1x | | |
11.6% | | |
43.5% | |
21.4% | |
 | |
98.5% | |
333 | |
1,163 | |
6.7x | | |
6.3x | | |
6.4% | | |
19.4% | |
17.4% | |
 | |
40.2% | |
414 | |
1,132 | |
NA | | |
NA | | |
NA | | |
NA | |
NA | |
 | |
72.1% | |
216 | |
719 | |
6.3x | | |
6.1x | | |
8.8% | | |
7.8% | |
24.2% | |
 | |
49.0% | |
50 | |
305 | |
8.1x | | |
8.0x | | |
7.9% | | |
21.5% | |
14.0% | |
 | |
43.3% | |
80 | |
252 | |
6.7x | | |
6.3x | | |
1.9% | | |
2.8% | |
14.0% | |
 | |
80.1% | |
139 | |
83 | |
3.9x | 1 | |
NA | | |
NA | | |
NA | |
19.3% | 1 |
| | |
| |
| |
| |
| | |
| | |
| | |
| |
| |
| Average | |
| |
| |
| |
6.5 | x | |
6.5 | x | |
7.6 | % | |
19.3 | % |
19.5 | % |
| | |
| |
| |
| |
| | |
| | |
| | |
| |
| |
| Median | |
| |
| |
| |
6.7 | x | |
6.3 | x | |
8.4 | % | |
20.0 | % |
19.3 | % |
| | |
| |
| |
| |
| | |
| | |
| | |
| |
| |
| | |
| |
| |
| |
| | |
| | |
| | |
| |
| |
| Memo: | |
| |
| |
| |
| | |
| | |
| | |
| |
| |
| Puerto Rico Radio 2 | |
| |
| |
| |
| | |
| | |
(0.1 | %) | |
1.8% | |
46.8% | |
| Source: |
Company filings, Wall Street
research, Press releases |
| Note: |
Market data as of 05/06/2022 |
| 1. |
Reflects LTM EBITDA metrics |
| 2. |
CAGRs represent ’19A
- ’22E |
Strictly
Private and Confidential
Selected Precedent Transactions Analysis
Radio: Methodology & Assumptions
Analysis reflects
implied enterprise value to EBITDA multiples paid in selected precedent transactions deemed generally relevant by Moelis in certain
respects to Talon’s Radio Business for the purposes of this analysis
| ■ | Moelis
selected precedent transactions in the radio and audio media services sector |
| ■ | However,
no single transaction is similar across a range of key criteria including |
| — | Transaction value / relative size |
| — | Business model (market attractiveness, station clusters
and geographic diversification) |
| — | Further, all of the
selected transactions occurred prior to the COVID-19 pandemic |
| ■ | Moelis
selected seven transactions in the radio and audio media services sector since 2016 and focused primarily on the transactions
with an enterprise value less than $3 billion given the size of Talon’s Radio Business |
| ■ | Moelis
selected a range of multiples from the selected precedent transactions analysis and applied the multiples to the Company’s
EBITDA to calculate enterprise value |
| — | Moelis selected a multiple range of 5.0x to 7.0x based
on the selected precedent transactions and was applied to Talon’s Radio Business’ LTM Adj. EBITDA as of 12/31/2021 |
| — | The transactions in the radio sector are relevant
to our analysis given the each target operated radio stations |
| — | None of the transactions are exact matches for Talon’s
Radio Business given that all of the transactions involving single stations were in top 40 MSAs including three in top two MSAs,
and the larger transactions involved the sale of several stations across multiple media markets |
Strictly
Private and Confidential
Selected
Precedent Transactions Analysis - Radio
Radio Precedent
Transactions
RADIO
| Ann. |
Target |
Acquiror |
Markets |
TEV
($mm) |
TEV /
LTM
EBITDA |
| Jul-19 |
Emmis Communications Corp. |
Standard General L.P. |
#1 New York |
$106 |
10.0x |
| Jun-19 |
Emmis Communications Corp. |
Sinclair Telecable |
#40 Austin |
78 |
7.5x |
| Apr-19 |
Cumulus Media Inc. |
Meruelo Group LLC |
#2 Los Angeles |
43 |
8.6x |
| Feb-18 |
Emmis Communications Corp. |
Hubbard Broadcasting / Entercom Communications |
#23 St. Louis |
60 |
12.0x |
| May-17 |
Emmis Communications Corp. |
Meruelo Group |
#2 Los Angeles |
83 |
11.1x |
| Feb-17 |
CBS Broadcasting, Inc. |
Entercom Communications Corp. |
19 Total, Including: #1
New York, #2 Los
Angeles, #3 Chicago |
2,861 |
8.1x |
| Jul-16 |
Greater Media, Inc. |
Beasley Broadcast Group, Inc. |
19 Total, Including: #7
Philadelphia, #11 Boston,
#14 Detroit, #22 Charlotte |
207 |
7.0x |
| Overall
Mean |
|
|
|
$491 |
9.2x |
| Overall
Median |
|
|
$83 |
8.6x |
| Source: |
Company filings, Wall Street
research, Press releases |
Strictly
Private and Confidential
Puerto Rico
Radio Assets: NOL Utilization & Illustrative Valuation
The below reflects a summary
of Hawkeye Management’s views of potential future Puerto Rico NOL utilization combined with the loss of foreign tax credits
STANDALONE WAPA PRE-TAX INCOME 1
| |
Projections |
| $
in millions |
Q4 2022E | | |
2023E | | |
2024E | | |
2025E | | |
2026E | |
2027E | | |
2028E | | |
2029E | | |
2030E | | |
2031E | | |
2032E | | |
2033E | | |
2034E | | |
2035E | | |
2036E | | |
2037E | |
| WAPA
Pre-tax Income 2 |
$3.9 | | |
$16.0 | | |
$16.3 | | |
$16.6 | | |
$16.9 | |
$17.3 | | |
$17.6 | | |
$18.0 | | |
$18.3 | | |
$18.7 | | |
$19.1 | | |
$19.5 | | |
$19.8 | | |
$20.2 | | |
$20.6 | | |
$21.1 | |
| Subject
to Tax Grants |
| - | |
| - | |
| - | |
| - | |
10.0 | |
10.2 | | |
10.4 | | |
10.6 | | |
10.8 | | |
11.0 | | |
11.2 | | |
11.4 | | |
11.7 | | |
11.9 | | |
12.1 | | |
12.4 | |
| Total
WAPA Pretax Income |
$3.9 | | |
$16.0 | | |
$16.3 | | |
$16.6 | | |
$26.9 | |
$27.4 | | |
$28.0 | | |
$28.5 | | |
$29.1 | | |
$29.7 | | |
$30.3 | | |
$30.9 | | |
$31.5 | | |
$32.1 | | |
$32.8 | | |
$33.4 | |
| PR
Taxes @37.4% |
$1.5 | | |
$6.0 | | |
$6.1 | | |
$6.2 | | |
$10.1 | |
$10.3 | | |
$10.5 | | |
$10.7 | | |
$10.9 | | |
$11.1 | | |
$11.3 | | |
$11.6 | | |
$11.8 | | |
$12.0 | | |
$12.3 | | |
$12.5 | |
| Add:
Taxes (Act 135) |
0.2 | | |
0.9 | | |
1.0 | | |
1.0 | | |
| - |
| - | |
| - | |
| - | |
| - | |
| - | |
| - | |
| - | |
| - | |
| - | |
| - | |
| - |
| Tax
Credit |
| - | |
(2.0 | ) | |
| - | |
| - | |
| - |
| - | |
| - | |
| - | |
| - | |
| - | |
| - | |
| - | |
| - | |
| - | |
| - | |
| - |
| Cash
Taxes Paid in PR |
$1.7 | | |
$5.0 | | |
$7.1 | | |
$7.2 | | |
$10.1 | |
$10.3 | | |
$10.5 | | |
$10.7 | | |
$10.9 | | |
$11.1 | | |
$11.3 | | |
$11.6 | | |
$11.8 | | |
$12.0 | | |
$12.3 | | |
$12.5 | |
PRO FORMA FOR ABILITY TO UTILIZE PUERTO RICO RADIO TAX ATTRIBUTES
AND IMPACT OF LOST FOREIGN TAX CREDITS
| PRO
FORMA TAXES |
| |
| |
| |
| |
|
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
|
| Pro
Forma PreTax Income for AMT |
$3.3 | | |
$13.3 | | |
$13.6 | | |
$13.9 | | |
$25.9 | |
$26.4 | | |
$26.9 | | |
$27.5 | | |
$28.0 | | |
$28.6 | | |
$29.2 | | |
$29.7 | | |
$30.3 | | |
$30.9 | | |
$31.6 | | |
$32.2 | |
| NOL
Limitation 3 |
2.3 | | |
9.3 | | |
9.5 | | |
9.7 | | |
18.1 | |
18.5 | | |
18.9 | | |
19.2 | | |
19.6 | | |
20.0 | | |
20.4 | | |
20.8 | | |
21.2 | | |
21.7 | | |
22.1 | | |
22.5 | |
| NOLs
Available Balance |
81.5 | | |
79.2 | | |
62.5 | | |
53.0 | | |
43.3 | |
25.2 | | |
6.7 | | |
- | | |
- | | |
- | | |
- | | |
- | | |
- | | |
- | | |
- | | |
- | |
| NOLs
Utilized |
$2.3 | | |
$9.3 | | |
$9.5 | | |
$9.7 | | |
$18.1 | |
$18.5 | | |
$6.7 | | |
- | | |
- | | |
- | | |
- | | |
- | | |
- | | |
- | | |
- | | |
- | |
| Taxable
Income |
$1.0 | | |
$4.0 | | |
$4.1 | | |
$4.2 | | |
$7.8 | |
$7.9 | | |
$20.3 | | |
$27.5 | | |
$28.0 | | |
$28.6 | | |
$29.2 | | |
$29.7 | | |
$30.3 | | |
$30.9 | | |
$31.6 | | |
$32.2 | |
| PR
Taxes AMT |
0.2 | | |
0.9 | | |
0.9 | | |
1.0 | | |
1.8 | |
1.8 | | |
4.7 | | |
6.3 | | |
6.4 | | |
6.6 | | |
6.7 | | |
6.8 | | |
7.0 | | |
7.1 | | |
7.3 | | |
7.4 | |
| PR
Taxes Regular |
0.1 | | |
0.6 | | |
0.6 | | |
0.6 | | |
1.0 | |
1.0 | | |
9.5 | | |
10.7 | | |
10.9 | | |
11.1 | | |
11.3 | | |
11.6 | | |
11.8 | | |
12.0 | | |
12.3 | | |
12.5 | |
| Taxes
Paid 4 |
$0.2 | | |
$0.9 | | |
$0.9 | | |
$1.0 | | |
$1.8 | |
$1.8 | | |
$9.5 | | |
$10.7 | | |
$10.9 | | |
$11.1 | | |
$11.3 | | |
$11.6 | | |
$11.8 | | |
$12.0 | | |
$12.3 | | |
$12.5 | |
| Add:
Taxes (Act 135) |
0.2 | | |
0.9 | | |
1.0 | | |
1.0 | | |
| - |
| - | |
| - | |
| - | |
| - | |
| - | |
| - | |
| - | |
| - | |
| - | |
| - | |
| - |
| Tax
Credit |
| - | |
(1.9 | ) | |
(0.1 | ) | |
| - | |
| - |
| - | |
| - | |
| - | |
| - | |
| - | |
| - | |
| - | |
| - | |
| - | |
| - | |
| - |
| AMT
Tax Credit |
| - | |
| - | |
| - | |
| - | |
| - |
| - | |
(1.2 | ) | |
(1.1 | ) | |
(0.3 | ) | |
| - | |
| - | |
| - | |
| - | |
| - | |
| - | |
| - |
| Cash
Taxes Paid in PR |
$0.5 | | |
- | | |
$1.8 | | |
$1.9 | | |
$1.8 | |
$1.8 | | |
$8.3 | | |
$9.6 | | |
$10.6 | | |
$11.1 | | |
$11.3 | | |
$11.6 | | |
$11.8 | | |
$12.0 | | |
$12.3 | | |
$12.5 | |
| Add:
Cash Taxes Paid in US With NOL |
0.3 | | |
7.2 | | |
8.3 | | |
8.3 | | |
10.6 | |
12.5 | | |
6.4 | | |
10.1 | | |
9.3 | | |
9.5 | | |
9.6 | | |
9.8 | | |
9.9 | | |
10.1 | | |
10.3 | | |
10.5 | |
| Net
Cash Taxes Paid With NOL |
$0.7 | | |
$7.2 | | |
$10.1 | | |
$10.2 | | |
$12.4 | |
$14.4 | | |
$14.6 | | |
$19.7 | | |
$19.9 | | |
$20.6 | | |
$21.0 | | |
$21.4 | | |
$21.7 | | |
$22.1 | | |
$22.6 | | |
$23.0 | |
| Cash
Taxes Paid in US Without NOL |
2.0 | | |
12.2 | | |
15.4 | | |
15.6 | | |
18.6 | |
18.9 | | |
19.3 | | |
20.9 | | |
20.3 | | |
20.7 | | |
21.0 | | |
21.4 | | |
21.8 | | |
22.2 | | |
22.6 | | |
23.0 | |
| Net
Benefit from NOLs |
$1.3 | | |
$5.0 | | |
$5.3 | | |
$5.3 | | |
$6.1 | |
$4.6 | | |
$4.7 | | |
$1.2 | | |
$0.4 | | |
$0.1 | | |
$0.1 | | |
$0.1 | | |
$0.1 | | |
$0.1 | | |
$0.1 | | |
$0.0 | |
NPV
Net Benefit Provided from
NOLs @8.25% | |
$24.1 | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
| SENSITIVITY ANALYSIS – NPV OF NET REDUCTION IN TAXES |
| |
|
|
|
|
|
| Discount
Rate |
| 8.25% |
8.81% |
9.38% |
9.94% |
10.50% |
| $24.1 |
$23.6 |
$23.1 |
$22.6 |
$22.1 |
| Source: | Hawkeye
Management, Talon, 3rd party tax advisors |
| Note: | Discount
rate range derived from Networks capital asset pricing model (“CAPM”); assumes
NOL balance as of 12/31/2021; reflects fully levered WAPA pre-tax income for illustrative
purposes |
| 1. | Assumes
growth rate in WAPA pre-tax income of 2.0% |
| 2. | Assumes
none of the income is subject to tax grants per Hawkeye Management |
| 3. | Assumes
70% NOL limitation with an AMT structure |
| 4. | Assumes
taxes paid are the higher of regular tax and the alternative minimum tax (“AMT”) |
Strictly
Private and Confidential
Strictly
Private and Confidential
Other
Information
Leveraged
Buyout (LBO) Assumptions and Illustrative Analysis
KEY
ASSUMPTIONS
| ■ | Uses
LRP through 2026 for the consolidated Hawkeye business (Networks and Pelican) |
| ■ | Assumes
$180mm of new debt (~5.00x LTM EBITDA of $35.1mm) |
| — | Assumes
refinancing of existing debt with new Unitranche Facility at L + 650bps, subject to a 1.00% LIBOR floor and 2% OID |
| ■ | Remaining
purchase price provided by equity from Sponsor |
| ■ | Assumes
transaction date of 03/31/22 and exit on 12/31/2026 |
| — | Assumes
minimum cash balance of $30mm |
| — | Assumes
$20mm of illustrative other transaction expenses |
| ■ | Exit
multiple calculated on a sum-of-the-parts basis based on 2026E revenue and EBITDA for
the Pelican and Networks businesses, respectively |
SENSITIVITY ANALYSIS
| Implied
Purchase Price (@ 4.75x Max Leverage) |
| Exit |
Required
IRR |
| Multiple |
17.5% |
18.8% |
20.0% |
21.3% |
22.5% |
| 6.0x
/ 1.5x |
$6.80 |
$6.39 |
$5.99 |
$5.62 |
$5.28 |
| 6.5x
/ 1.9x |
8.46 |
7.96 |
7.49 |
7.05 |
6.64 |
| 7.0x
/ 2.3x |
10.12 |
9.54 |
8.99 |
8.48 |
8.00 |
| 7.5x
/ 2.6x |
11.72 |
11.09 |
10.49 |
9.91 |
9.36 |
| 8.0x
/ 3.0x |
13.25 |
12.58 |
11.93 |
11.30 |
10.70 |
| Networks
/ Pelican |
|
|
|
|
PF
FREE CASH FLOW BUILD
| |
Fiscal Year Ending December 31, |
| ($
in millions) |
9M 2022E |
|
2023E |
|
2024E |
|
2025E |
|
2026E |
| Adjusted
EBITDA (Post-SBC) |
$32 |
|
|
$44 |
|
|
$62 |
|
|
$71 |
|
|
$89 |
|
| %
Growth |
|
|
|
|
|
|
40.1% |
|
|
14.3% |
|
|
25.5% |
|
| (-) Taxes |
(3 |
) |
|
(4 |
) |
|
(8 |
) |
|
(12 |
) |
|
(19 |
) |
| (+) Other
Adjustments |
0 |
|
|
1 |
|
|
0 |
|
|
0 |
|
|
0 |
|
| (-) LatAm
Cash Timing Difference |
1 |
|
|
1 |
|
|
-- |
|
|
-- |
|
|
-- |
|
| (-) Equity
Method Investments |
(1 |
) |
|
-- |
|
|
-- |
|
|
-- |
|
|
-- |
|
| (-) Capex |
(4 |
) |
|
(5 |
) |
|
(5 |
) |
|
(5 |
) |
|
(5 |
) |
| (+) Programming
/ Content Amortization |
22 |
|
|
37 |
|
|
47 |
|
|
56 |
|
|
62 |
|
| (-) Cash
Content Spend |
(37 |
) |
|
(49 |
) |
|
(53 |
) |
|
(58 |
) |
|
(63 |
) |
| (-) Change
in Working Capital |
(2 |
) |
|
1 |
|
|
(2 |
) |
|
0 |
|
|
(1 |
) |
| (+) Pantelion
2.0 Cash Flow |
(1 |
) |
|
(1 |
) |
|
(6 |
) |
|
4 |
|
|
(1 |
) |
| (-)
Interest Expense |
(17 |
) |
|
(19 |
) |
|
(18 |
) |
|
(15 |
) |
|
(11 |
) |
| Levered
Free Cash Flow |
($9 |
) |
|
$6 |
|
|
$18 |
|
|
$42 |
|
|
$51 |
|
| Source: |
Hawkeye Management |
| Note: |
Market
data as of 05/06/2022. Assumes 20.7mm Class A shares, 19.7mm Class B Shares, 4.48mm options with strike prices ranging
from $5.44 to $15, total debt of $251.6mm, cash of $37.3mm, equity method investments of $22.7mm (which are treated as
cash and calculated using Hawkeye Management’s estimate for the value of these assets) and post-tax pension liability
of $1.7mm per Hawkeye Management
|
Strictly
Private and Confidential
Other
Information
Hawkeye
Current Capitalization
| TEV
BUILD |
| (figures in $ millions,
except per share data) |
Capitalization
| Capitalization |
|
| |
|
| Share Price Class A Shares (as of 05/06/2022) |
$3.77 |
| (x) Common shares outstanding |
20.680 |
| Share Price Class B Shares (as of 05/06/2022) |
$3.77 |
| (x) Common shares outstanding |
19.720 |
| Equity Value |
$152.3 |
| |
|
| (+) Total Debt 1 |
251.6 |
| (–) Cash 1 |
(37.3) |
| Net Debt |
$214.3 |
| |
|
| (+) Noncontrolling Interests |
-- |
| (+) Pension Obligation |
1.7 |
| (–) Non-Core Assets 1 |
(22.7) |
| TEV |
$345.6 |
| |
|
| FDSO |
|
| |
|
| Common Shares (A Shares + B Shares) |
40.401 |
| (+) Options |
 |
| FDSO |
40.401 |
| OPTIONS
SCHEDULE |
| (figures in $ millions,
except per share data) |
| Options Schedule |
| |
|
|
|
| Item |
#
of Units |
Strike
Price |
Dilution |
| Tranche 1 |
0.105 |
$5.44 |
-- |
| Tranche 2 |
0.025 |
$9.29 |
-- |
| Tranche
3 |
1.200 |
$10.20 |
-- |
| Tranche
4 |
0.020 |
$10.35 |
-- |
| Tranche
5 |
0.030 |
$10.39 |
-- |
| Tranche 6 |
0.040 |
$10.60 |
-- |
| Tranche 7 |
0.055 |
$11.35 |
-- |
| Tranche 8 |
0.025 |
$11.35 |
-- |
| Tranche 9 |
0.040 |
$11.51 |
-- |
| Tranche 10 |
0.300 |
$11.65 |
-- |
| Tranche 11 |
0.010 |
$11.70 |
-- |
| Tranche 12 |
0.650 |
$11.90 |
-- |
| Tranche
13 |
0.210 |
$11.95 |
-- |
| Tranche
14 |
1.025 |
$12.06 |
-- |
| Tranche
15 |
0.060 |
$12.43 |
-- |
| Tranche 16 |
0.095 |
$12.56 |
-- |
| Tranche 17 |
0.065 |
$13.49 |
-- |
| Tranche 18 |
0.045 |
$13.53 |
-- |
| Tranche
19 |
0.035 |
$14.00 |
-- |
| Tranche
20 |
0.325 |
$15.00 |
-- |
| Total |
4.360 |
|
 |
| Source: |
Company filings, Hawkeye Management |
| Note: |
Market data as of 05/06/2022. Assumes 20.7mm
Class A shares, 19.7mm Class B Shares, 4.48mm options with strike prices ranging from $5.44 to $15.00, total debt of $251.6mm,
cash of $37.3mm, equity method investments of $22.7mm (which are treated as cash and calculated using Hawkeye Management’s
estimate for the value of these assets) and post-tax pension liability of $1.7mm |
| 1. |
3/31/22 estimates per Hawkeye Management |
Strictly
Private and Confidential
Other
Information
Hawkeye
Equity Research Overview
| ANALYST / DATE / RATING |
|
PRICE TARGET |
BROKER
VALUATION PERSPECTIVES
| |
|
| Valuation
Method |
2022E
Revenue |
2022E
EBITDA |
■ |
Based
on Guggenheim’s DCF valuation using a 2% long-term growth rate and a 9.5% WACC (up from 9.1% prior)
|
$220mm |
$40mm |
■ |
Valuation
is based solely on Guggenheim’s DCF due to the company’s Pelican acquisition
|
|
|
| |
|
|
|
| ■ |
Lowered EV/Sub multiple from 250x to 125x, using YE23
Pelican subs of 1.7mm |
|
|
■ |
Models
the company returning to EBITDA growth in FY23 as revenue/profitability growth lags the increased investment
|
$229mm
|
$41mm
|
MOELIS
OBSERVATIONS
| ■ | Given
Guggenheim’s near-term cash flow forecast, WACC and terminal year growth rate assumptions,
it would require long term projections materially higher than Hawkeye Management’s
forecast to achieve a valuation of $12.00 per share |
| ■ | Wells
Fargo’s SOTP valuation implies the following: |
| — | Blended
Networks / Broadcasting multiple of 6.6x management 2022E EBITDA, as compared to Fox multiple of 6.3x 2022E EBITDA |
| — | Pelican
multiple of 2.8x management 2022E revenue, as compared to Netflix and Curiosity Stream 2022E revenue multiples of 2.7x and 0.2x,
respectively |
| — | $101mm
of value for equity method investments, which Hawkeye Management estimates is worth $22.7mm (implied impact per share of $1.94) |
| ■ | Wells
Fargo has informed the Company that they are discontinuing coverage |
Source: Hawkeye
Management, Wall Street research, Capital IQ as of 05/06/2022
1
