Citadel golden parachutes bigger than reported


RBR-TVBR Analysis

The preliminary proxy material that Citadel Broadcasting has filed with the SEC includes estimates of the severance packages for CEO Farid Suleman and other top execs once the company is acquired by Cumulus Media. However, on closer examination, the payouts will actually be bigger than stated in the filing – wwaaaaaaaaaayyy bigger.

The chart of potential payments to Citadel’s top five executives is based on the payments required under their contracts in the event of a change of control and the value of their stock options. Stock option vesting is accelerated in the case of a change of control, so all will be exercisable.

The preliminary proxy, however, calculates the value of the severance packages “assuming that such events occurred as of December 31, 2010.” They didn’t, of course, but that’s apparently one of those accounting rules that doesn’t relate to the real world.

Back on New Year’s Eve Citadel’s Class A stock closed at $30.25. That was long before Citadel agreed to be acquired by Cumulus for a stated value of $37 per share in cash and stock. That value has gone up and down with the value of Cumulus’ stock – most recently down – but for now we’ll do the math using the stated value of $37. The exact value won’t be known until the deal closes, likely around Labor Day.

In the SEC filing of last week Suleman is shown with a severance package of a bit over $16 million, mostly from $11.75 million due under his employment contract, nearly $17K in benefits and less than $4.3 million from his stock options. But that was at the $30.25 price, when his options at $28 were worth only a couple of bucks each and those at $32 were worthless. At $37 the $28 options are worth $9 each and the $32 options five bucks each.

With nearly 1.8 million of the $28 options and over 600K of the $32 options, Suleman’s $28 options are worth over $17 million at the $37 price and the $32 options nearly $3.2 million. The total is over $20.2 million, which is a considerable increase over the $4.3 million listed in the preliminary proxy. In all, his total severance grows to a bit over $32 million – just shy of twice what is listed in the SEC filing.

At $37 per share, COO Judy Ellis is in line for $1.06 million from her stock options, not $225K, so her total package grows to $2.68 million from the $1.84 million listed.

CFO Randy Taylor’sl option holdings increased in value to nearly $851K at $37, rather than just shy of $180K at the $30.25 price of last December. Taylor’s total golden parachute grows to $2.7 million from $2.03 million.

Former VP/General Counsel Jacquelyn Orr is also listed in the chart, as of December 31, 2010, but she exited the company exactly a month later and forfeited the value of her options.

Sr. VP of Finance & Administration Patricia Stratford would see her options worth $599K at the $37 price, up from only $126K in the preliminary proxy based on the $30.25 price. Her total severance package would grow to just under $1.4 million from $918K.

RBR-TVBR observation: To be fair, Suleman and the other top execs will still be getting a lot less with the options than they would have gotten with the restricted shares they gave up when some big shareholders objected. Also, the CEO opposed the sale to Cumulus and fought fiercely to keep Citadel independent. But he lost that battle and will be leaving with some nice parting gifts.