Citadel fires back at Lew Dickey and R2


The people in charge at Citadel Broadcasting aren’t bending from pressure being applied to make the company’s board of directors negotiate with Cumulus Media CEO Lew Dickey on his takeover bid. In a statement, the company also dismissed a hard-hitting letter from one of its largest shareholders, R2 Investments, demanding that the board negotiate for a sale.

The new information made public in the response from Citadel Broadcasting is that the original bid from Cumulus would have capped the cash portion of the cash and stock deal at $500 million. The revised offer, which was also rejected, doubled the cash portion to $1 billion.

Here is what the company had to say on Friday:

“Citadel Broadcasting Corporation today stated that a letter it recently received from R2 Investments, LDC is full of baseless claims and is nothing more than a heavyhanded ploy by R2 to advance its own interests at the expense of Citadel and its shareholders.

Citadel is executing a strategic plan its Board of Directors believes will create significant shareholder value over time. In June, Citadel successfully completed its reorganization plan and in December refinanced all of its existing higher-cost debt. This will result in a substantial reduction in annual interest costs with expected savings of approximately $35 million in 2011 and beyond. With a stronger balance sheet, Citadel is well positioned to operate its business and take advantage of market opportunities.

In early December, as previously announced, Citadel’s Board unanimously rejected an unsolicited acquisition proposal. Under this highly conditional proposal from Cumulus Media Inc., each Citadel share would be exchanged for $31.00 in Cumulus shares and/or cash, subject to a cap on the aggregate cash consideration of $1 billion. Citadel’s Board had previously rejected an earlier unsolicited proposal by Cumulus for an at-market merger with aggregate cash consideration capped at $500 million. The Board has received another letter from Cumulus regarding its most recent proposal that does not contain any material new information.

Consistent with its fiduciary duties, Citadel’s Board carefully considered the revised Cumulus proposal with the assistance of its financial advisors, JP Morgan Securities Inc. and Lazard, and its legal counsel, Weil Gotshal & Manges LLP and Kirkland & Ellis LLP. The Board determined that the revised Cumulus proposal was not in the best interests of Citadel shareholders for many reasons, including:

-The proposal was neither credible nor at an appropriate valuation.
-Cumulus provided no equity or debt financing commitments or terms.
-Cumulus has a highly leveraged balance sheet and is operating under a suspension of certain of its debt covenants that expires on December 31, 2010.
-Cumulus’ small equity market capitalization would require it to issue to Citadel shareholders more than twice as many new shares as are currently outstanding, before any additional shares that would be issued in any Cumulus equity financing.
-Uncertainty surrounding what would be a lengthy and complex regulatory review process.

Citadel remains committed to carefully considering any credible acquisition proposals. Contrary to false representations by R2, the recent debt refinancing would in no way preclude Citadel from entering into a change of control transaction should the Citadel Board conclude that it is in the best interests of shareholders.”

RBR-TVBR observation: Citadel blinked. If Cumulus or anyone else is going to take a run at Citadel you have to view Citadel’s reply, it is an open road map on why the offer was rejected and possibly how to overcome these objections with solutions. Prop your feet up and read the details because this is going to get interesting.

It Ain’t Over ’til It’s Over and the pressure on Citadel from Cumulus is just beginning.

Q? What do you think will happen to Citadel, post your comment below.