Cumulus Media goes public with bid for Citadel Broadcasting


It’s no longer a (not so) secret who made a bid for Citadel Broadcasting which was rejected twice by the board of directors. Cumulus Media has now gone public with its offer and revealed the financial terms.

Cumulus revealed Friday (12/17) that it had made an offer which valued Citadel at approximately $2.1 billion. It proposed to acquire all of the outstanding equity of Citadel for $31 per share. The merger as proposed would have allowed the Citadel shareholders to elect to receive cash or Cumulus stock, with a total of up to $1 million of cash to be paid, representing about 71% of the consideration to Citadel shareholders.

“This offer continues to represent a superior alternative in value, liquidity and potential growth for the former secured creditors of Citadel who, post-bankruptcy, are now the owners of the company,” said Cumulus CEO Lew Dickey (pictured) as he reiterated the offer to acquire Citadel.

As previously disclosed by Citadel, the company’s board of directors twice rejected the merger overture from the outside party, now confirmed to be Cumulus. The first bid was received and rejected in November and an improved offer was then received and rejected as of December 6th.

Cumulus has now sent a letter to the Citadel board reiterating its offer and its desire to reach agreement on a transaction that would deliver superior value and substantial liquidity to Citadel’s shareholders. That letter has been made public in a move to build pressure on the Citadel board.

Here is the letter:

December 16, 2010

Board of Directors
Citadel Broadcasting Corporation
7201 W. Lake Mead Blvd.
Suite 400
Las Vegas, NV 89128

Mr. John L. Sander

Chairman of the Board of Directors

Ladies and Gentlemen:

We reference our letter to you of November 29, 2010, containing our proposal for a merger of Citadel Broadcasting Corporation (“Citadel”) with Cumulus Media Inc. (“Cumulus”). We do not understand why you have been unwilling to engage with us to explore such a transaction and to consider its benefits to Citadel and its shareholders. We had made an earlier proposal a number of weeks prior that you also rejected.

In response to increasingly stronger encouragement that we have received from individual Citadel shareholders who have urged us to continue our efforts to combine our companies and thereby deliver substantial and tangible value to Citadel’s shareholders, we write you again.

Our November 29 Proposal
The merger proposed in our November 29 letter would provide a premium to Citadel’s shareholders, with the majority of the consideration being paid in the form of cash. Pursuant to the transaction each Citadel shareholder could elect to receive cash in lieu of shares of Cumulus stock, subject to a cap on the aggregate cash consideration of $1 billion. The transaction would be structured to deliver $31.00 in value per Citadel share (and warrant), representing an approximate 16% premium to Citadel’s volume weighted average price for the twenty trading days preceding the proposal. If every Citadel shareholder would elect the cash option in full, with pro-ration, approximately $22.16 in cash would be paid per Citadel share, and an additional $8.84 in value per Citadel share would be delivered to Citadel shareholders in shares of Cumulus stock. Thus, each shareholder will receive a minimum of over 71% of the consideration in cash, and depending on the stock elections of shareholders, some may receive substantially more in cash. In summary, our proposal would deliver $2.1 billion in enterprise value for Citadel.
As we pointed out in our November 29 letter, the premium cited above does not reflect the benefits of synergies resulting from the combination that would provide additional value to Citadel’s shareholders. In the transaction, these synergies would be shared over time, on a pro rata basis to equity ownership, with Citadel’s shareholders. They include station-level synergies, overlap markets, national network expansion, corporate overhead reduction, and increased scale.

No Further Impediments
In our November 29 letter, we urged Citadel to not complete a refinancing that:
“[M]aterially reduces the benefits to [the Citadel shareholders] that would be delivered to them in [the proposed merger].”

Notwithstanding this caution, Citadel completed a note issue that requires a $31 million make whole payment upon a refinancing of the notes in conjunction with a merger like the one proposed by Cumulus. We are presently considering the effect on our proposal of this incremental cost of approximately $0.65 per Citadel share.

We also note that the leverage ratio comprising the debt incurrence covenant was lowered from 5.5x in the preliminary offering memorandum used to market the notes to 4.5x under the final terms. Before this change was made you had been informed, in our correspondence, of our projected pro forma leverage for the combined companies of approximately 5.0x.

As a separate matter, after you were provided our proposal, the note offering terms were also altered to expand the definition of Change of Control (which requires a mandatory offer to repurchase the notes at a premium) to include the entry by Citadel into any merger agreement within one year of the issuance of the notes, if upon completion Citadel or the other company surviving the merger would have a leverage ratio greater than 3.75x. This unusual definition for Change of Control does not require any particular minimum level of change in share ownership.
We request that no further actions be taken by Citadel that would impede our proposed transaction until it is fully vetted.

Proposed Next Steps
To address the concerns of the Citadel shareholders, we request that we commence a process that best serves the interests of your constituents. To begin, Citadel would provide Cumulus with certain business and financial information of Citadel, subject to a confidentiality agreement. This information will assist Cumulus in addressing the effect upon its proposal of the extra notes-related cost recited above, and also to evaluate combination synergies more particularly. It will allow Cumulus to consider if its offer can be altered to make it even more attractive to Citadel shareholders. In addition, our financial advisors would be available to discuss the merits of the transaction, and to address questions and be available to engage with your financial advisors at their earliest convenience.

These initial steps would not constitute an acknowledgment by Citadel as to the sufficiency of our proposal as it currently stands. They will, however, allow us to begin a process that will potentially deliver to them superior value, including substantial liquidity, in conformity with your fiduciary duties.

Until a definitive merger agreement is executed, neither party will have any obligation with respect to the proposed transaction and, following the execution of such a merger agreement, each party’s only obligations would be set forth therein.

We look forward to hearing from you soon and to working together to deliver liquidity and value for all Citadel shareholders.


Lewis W. Dickey, Jr.
Chairman and Chief Executive Officer

RBR-TVBR observation: The obvious intention is to get Citadel’s former creditors-turned-shareholders involved to put pressure on the board. Those former creditors, including numerous vulture capital investment funds, tend not to be long-term investors, so they might well look favorably on an offer which would allow them to take their profits and move on.

Citadel’s management and board have already had one very public run-in with those fast-buck funds. R2 Investments went to court against the board when it granted restricted stock to CEO Farid Suleman and other top managers, along with the directors themselves, shortly after the company emerged from Chapter 11. The stock grants were rescinded and replaced with options.

At $31 per share half of the options (those with a strike price of $28) would be in the money, assuming the board accelerated vesting as part of a merger deal with Cumulus, but not the other half (at $32).

By going public, Cumulus has clearly put Citadel in play. The bidding is at $2.1 billion. Will anyone else step forward to bid in this auction?

Citadel’s publicly traded warrants (to acquire Class A stock on a 1-to-1 basis for $0) jumped to $35 in Friday’s early pink sheet trading, so someone thinks $31 is not the final word. However, all three of the company’s publicly traded securities ended the session below $30.

Related stories:

Big shareholder backs sale of Citadel Broadcasting

Citadel fires back at Lew Dickey and R2