What's Citadel worth?
CEO Farid Suleman hung a "for sale" sign on the company at last week's UBS Securities conference, but will there be any takers? What he actually said was that majority shareholder Forstmann Little would like to "sell for the right price." Although CEO's seldom talk about it publicly, that's true for most public stock companies - - they are for sale if someone wants to make an offer that the shareholders can't refuse.
No one thought that Ted Forstmann was getting into radio for the long haul when he took Citadel private in 2001, paying $2 billion to buy out the public shareholders of the company previously run by Larry Wilson. Forstmann's strategy was no secret - - buy out a public company at what looked like a bargain price, build up the cash flow and cash out to the public at a higher multiple.
Things didn't work out that way. With a big name CEO, Suleman, hired in from Infinity, Citadel did get its new IPO done, but at a disappointing 19 bucks a share - - and it has seldom been even that high since. What looked like a short-term downturn for radio has stretched on for years. So Forstmann is in the same boat with other broadcasters, waiting for the radio ad market to get back on track. He did manage to talk the stock back up to 19 at one point and off-load part of the Forstmann Little stake, but we doubt that he could do that again. Even after Suleman's comments last week in New York, the stock only went up 49 cents to 15.39 - - still a long way from 19.
There's been talk that some radio companies might consider going private because of the low public valuations. Cox Radio is a possibility, since parent Cox Enterprises has already done that with its cable company. But most radio companies don't have the capital available to buy out their public shareholders. Forstmann, at least in theory, could do so, but he's not likely to commit even more money to a bet gone badly. He'll back Suleman in buying more stations to build up the company, but the objective is still to cash out when the market improves and move on to other ventures.
So, is anyone else likely to buy Citadel? With its stock price down in the 15-dollar range, the company is still trading at a mid-teens multiple of expected 2005 free cash flow - - in the upper end of the radio group. A bid of 19 bucks would take that to nearly 20 times and total 2.4 billion, plus another half billion in debt, for a price tag approaching three billion. We can't imagine where such a big offer would come from. But if you've got those bucks, see our next story for a look at what Citadel has to offer.
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