Deutsche Bank Comments On Arbitron, Pending Merger

Key takeaways are that the industry has increased confidence in the PPM and Arbitron ARB as the currency, and any negative impact from the merger is likely to be modest. Deutsche Bank maintains its Buy rating on ARB as we see double-digit EPS growth in 2011/12 and strong acceleration of cash flows from depressed levels now that the PPM roll-out is complete and the radio ad market and economy are recovering. MRC accreditation of 11 additional PPM markets is further evidence of a successful transition to electronic measurement in terrestrial radio, and demonstrates increased industry confidence in the currency. Additionally, the recent client-only “PPM Update” call revealed that PPM improvement initiatives are on track, with substantially all sample quality metrics meeting or exceeding their benchmarks. The pending Citadel/Cumulus merger has surfaced investor questions on the potential impact to Arbitron. From DB's perspective, there are two sides to this coin. On the one hand, a healthier customer is undoubtedly a good thing for Arbitron. However, a bigger customer is likely a tougher negotiator. Deutsche Bank sees at least five potential outcomes, some involving a reduction in total contract value and others no negative impact. Deutsche Bank has a $45 PT and Buy rating on ARB ARB closed Wednesday at $39.44