Big shareholder backs sale of Citadel Broadcasting


One of Citadel Broadcasting’s largest shareholders has already spared with the company’s board of directors over stock grants, which were withdrawn and replaced with options, and now it is pressing for the board to negotiate for a sale of the company. It is demanding that the board consider the offer on the table from Cumulus Media and “stop acting in its own self-interest.”

R2 Investments – sometimes referred to as “R-Squared” – is a Cayman Islands-based hedge fund linked to Texas investor Geoffrey Raynor. It is known for being an activist investor. It was one of the investors which had battled with Emmis Communications CEO Jeff Smulyan over the payout to preferred shareholders in this year’s failed attempt to take Emmis private.

Here is the letter that R2 sent to Citadel’s directors:

Dear Citadel Board Members:

It has only been two months since you were stopped from your last grand act of self-interest.  In our opinion, you appear once again to be exhibiting an utter disregard for shareholders’ interests for what we believe must be some sort of personal agenda. You have received two merger proposals from Cumulus Media, which shareholders have demanded you take seriously.  You have rejected both and have refused to engage them at all.  A board concerned about its shareholders should have engaged Cumulus to negotiate the best possible deal and then would have let the shareholders vote on whether the deal is acceptable.

Your decision to move forward with a bond issue that would make any takeover much more costly – thereby penalizing shareholders – is really beneath contempt in our view.  There is a built in $31 million payment to bondholders (directly out of equity holders’ pockets) in the case of any merger.  Your decision here once again potentially takes money from shareholders’ pockets – approximately $0.65 per share – in what we can only surmise is an attempt to protect your own jobs and own self-interest.

Did you learn nothing from your last encounter with the legal system and the court of public opinion?

Last time, the judge in the Southern District of New York gave you a rather harsh rebuke and told you to comply with what you had told shareholders you would pay management and yourselves.  Legally, what you did was wrong, but it should have never gotten to that point.  Regardless of what your lawyers told you was legal, you should have known better because what you did was ethically reprehensible.  You have a duty to listen to shareholders – after all, they are the very people who elected you to the board.  You didn’t do it last time even though it was abundantly clear that shareholders did not want you to award stock to the management and to yourselves.  And you are not doing it again this time.

After your first trespass, we had our doubts whether you and this management team were best suited to lead this company.  This last episode has confirmed our suspicions – this company would be better off with different leadership.  We find it unconscionable that this board would flatly reject the second proposal from Cumulus despite the fact that many of your significant shareholders urged Cumulus to submit a more attractive proposal after its initial rebuke.  We believe that the majority of shareholders would agree with us, and if you put any reasonable merger proposal to a vote, you would discover that for yourselves.

In summary (and in our opinion):  First, you tried to pull off one of the most egregious shams for a company coming out of bankruptcy and pay yourselves and the management team a bonus of $110 million.  Now, in a similarly self-interested maneuver, you’ve put up roadblocks to a merger so that you can keep your jobs. Shame on you!

We are here to tell you that we will not let this latest travesty and abuse of shareholders’ interests go unchallenged or unheralded.  We will once again seek every legal means to address what is, in our view, a breach of your fiduciary duty to equity holders in favor of your self-interest in preserving your jobs and will hold each of you personally liable for your actions.  And we will once again seek every public outlet possible to communicate the facts of this situation so that all of corporate America can know exactly what sort of directors you are.

Sincerely Yours,
R2 Investments, LDC