7 isle stations
part of radio
megadeal

Chancellor Media Corp. will pay
$4.1 billion for Capstar,
whose stations include KSSK

Staff and wire

Chancellor Media Corp. has agreed to buy Capstar Broadcasting Corp., which owns seven Hawaii radio stations, for $4.1 billion in stock and assumed debt.

The deal combines two companies controlled by Hicks, Muse Tate & Furst to create the largest U.S. radio broadcaster.

Bob Longwell, general manager of Capstar's operation in Hawaii, said no changes are expected since essentially it will be a merger of two companies that are already related.

"This is something we've looked forward to," Longwell said this morning. The Honolulu stations, operated by Capstar subsidiary Pacific Star Communications, are KSSK, KHVH-AM, STAR 101.9, Classic Rock 98.5, Country 990 AM, I-94 (KIKI-FM) and KIKI-AM.

Shareholders of Irving, Texas-based Chancellor will get a share of the new company for each of their shares and Capstar holders will receive 0.480 of a share, or $21.48 per share, based on Chancellor's closing price yesterday. Chancellor, which will assume $1.79 billion in Capstar debt and preferred stock, is paying 15.5 times Capstar's projected 1999 cash flow.

Hicks Muse, a Dallas-based investment firm headed by Thomas O. Hicks, is forming a broadcaster with 463 radio stations in 105 markets. Hicks is taking advantage of recent regulatory changes that make it easier for companies to own more stations in any one market, allowing broadcasters to cut costs and cross-sell advertising.

"It has been a long-term professional and personal goal of mine to create the nation's largest radio and broadcasting entity by all measures," said Hicks, who will be chairman of the combined company.

Hicks Muse, which owns about 15 percent of Chancellor and 59 percent of Capstar, is expected to own about 25 percent of the combined company, which will keep the Chancellor name.

Chancellor shareholders will own 66 percent of the new company and Capstar shareholders will own 9 percent. The transaction, which the companies called a reverse merger, is expected to increase after-tax cash flow, they said.

Shares of Chancellor fell $3.621/2 to $41.121/2 in midday trading; Capstar, based in Austin, Texas, fell $2.50 to $19.

Chancellor President and Chief Executive Jeffrey Marcus will keep his position in the combined company, while Capstar Chief Executive and President R. Steven Hicks, brother of Thomas O. Hicks, will be vice chairman.

The acquisition requires approvals by shareholders and regulators.

Salomon Smith Barney Inc. and Wasserstein Perella & Co. advised Chancellor on the acquisition.

Hicks Muse, formed in 1989, has completed or has pending more than 230 transactions worth more than $30 billion.

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Bloomberg News and Star-Bulletin reporter
Russ Lynch contributed to this report.