Forced to go public when news was leaked Thursday to CNBC, Citadel Broadcasting announced as soon as trading closed on Wall Street that it has entered into exclusive negotiations to be acquired by Cumulus Media. The deal will have Cumulus acquire Citadel for cash and stock totaling $37 per share.
The winning bid was up from the original offer of $31, which had been summarily rejected by the Citadel board. But the board had been under pressure from some major shareholders to negotiate a sale of the company, with dissident shareholder Geoffrey Raynor’s R2 Investments even enlisting the New York Times to press the issue.
According to the announcement from Citadel, the proposal is still “non-binding,” but here are the terms. Cumulus would pay $37.00, in a combination of cash and Cumulus stock, for each Citadel share and warrant. Based upon the proposed cash and stock election formula, the $37.00 per share consideration would on average be capped at $30.00 per share in cash and at $14.00 per share in Cumulus stock at a fixed exchange ratio. Based on actual elections made by Citadel shareholders and subject to proration, each Citadel shareholder could individually receive more or less cash or Cumulus stock than these amounts, up to the $37.00 per share total.
As predicted by RBR-TVBR, Crestview Partners will become a major Cumulus shareholder as part of the deal. Cumulus has indicated to Citadel that Crestview Partners and Macquarie Capital are expected to provide up to $500 million in equity financing. Cumulus expects to obtain the remainder of the cash necessary to fund the transaction through debt financing to be led by UBS Investment Bank, together with Macquarie Capital.
J.P. Morgan and Lazard are acting as financial advisors and Weil, Gotshal & Manges LLP is acting as legal advisor to Citadel. UBS Investment Bank is acting as financial advisor and Jones Day is acting as legal advisor to Cumulus.
RBR-TVBR observation: The board at Citadel had originally insisted that the Cumulus bid at $31 undervalued the company and that shareholders would be better served by having CEO Farid Suleman and his team grow the company. What changed their minds? In addition to the pressure from R2 and other big shareholders, the sale of 17 big market stations by Bonneville International to Hubbard Broadcasting was a major wakeup call which set a post-recession benchmark of around eight times cash flow for radio assets. It looks like Citadel was able to squeeze out a little more than that by having Lew Dickey at Cumulus and David Field at Entercom bidding aggressively, but the double-digit multiples of pre-recession times are not coming back soon.
RBR-TVBR exclusive background reading: