A potential major roadblock to the sale of performance rights organization BMI was cleared, after a US court agreed to a dispute settlement between BMI, its new owners and financially troubled radio/podcast company Audacy.
Philadelphia-headquartered Audacy, the US’s second-largest radio station owner by revenue, which is in the midst of bankruptcy proceedings, had threatened to file a shareholder lawsuit against BMI to block the company’s sale over a dispute involving its shares in BMI.
BMI had originally been set up in 1939 as a not-for-profit owned by a consortium of broadcasters. The company agreed to be sold in November to a shareholder group led by private equity firm New Mountain Capital, for an undisclosed sum that is estimated at between USD $1.2 billion and $1.5 billion.
New Mountain Capital announced on Thursday (February 8) that it has completed its acquisition of BMI. According to the update issued by NMC, the deal has now received the necessary shareholder and regulatory approvals required for closing.
Under the deal struck between Audacy, BMI and affiliates of New Mountain Capital, Audacy will receive new shares in BMI that it will be able to cash in for $25.4 million, according to an affidavit from Audacy’s CFO, Richard Schmaeling.
On top of that, Audacy could receive another $13.58 million from the sale of two other tranches of BMI shares, provided that another, stronger, claim of ownership isn’t made on those shares, according to Schmaeling’s affidavit, which can be read in full here.
Audacy was established in 1968 as Entercom Communications. In the decades since, it has taken ownership of numerous radio stations, today numbering around 225, including the 1999 acquisition of 40 stations from Sinclair Broadcasting, and the 2017 acquisition, through a merger, of CBS Radio.
As a result, Audacy ended up with a complex web of ownership stakes in BMI, which the company began to investigate in conjunction with BMI late last year, after BMI’s sale was announced. The uncertain status of the ownership of certain BMI shares was due to “the lack of easily accessible evidence going back several decades,” Schmaeling said in his affidavit.
Additionally, the agreement between BMI and Audacy settles another financial dispute between the two parties. Following an audit, BMI asserted that Audacy owed the rights organization $1.68 million in unpaid fees from 2017-2019. Under the agreement, Audacy will pay $500,000 to settle those claims.
“The settlement… allows the parties [involved] to avoid the time and expense necessary to prevail in a contested litigation that, even on an expedited schedule, would likely last several months and cost millions of dollars.”
Richard Schmaeling, Audacy
BMI also claims that it is owed $9.26 million in unpaid license fees and accrued late fees by Audacy since 2018. Under the agreement, BMI and Audacy will resolve those claims within 60 days of the sale of BMI, which is expected to happen this quarter.
The settlement “allows the parties [involved] to avoid the time and expense necessary to prevail in a contested litigation that, even on an expedited schedule, would likely last several months and cost millions of dollars,” Schmaeling said in his affidavit.
“There is also a risk that the very act of seeking injunctive relief to stop [the sale of BMI to New Mountain Capital] and following litigation could cause NMC and BMI to abandon the merger altogether,” Schmaeling added. “Therefore the very act of filing suit – even if the suit is otherwise successful on the merits – could result in no recovery at all.”
Audacy filed for bankruptcy protection in the US Bankruptcy Court for the Southern District of Texas in January, as part of a prepackaged plan with its creditors that would allow it to reduce its outstanding debt of $1.9 billion by around 80%, to $350 million.
Approved in advance by a majority of creditors, the plan entails handing ownership of the company to its debtholders, in exchange for debt forgiveness.
The New York Stock Exchange halted trading in Audacy shares in May 2023 due to the stock’s “abnormally low price levels,” and the company was officially delisted in November of last year.
On Tuesday (February 7), US Bankruptcy Judge Christopher Lopez, who is overseeing Audacy’s bankruptcy proceedings, issued an order approving the agreement between Audacy, BMI and New Mountain, having found that it “is in the best interests of [Audacy], their creditors, and other parties in interest.”
The judge’s ruling can be read in full here.Music Business Worldwide