With the public float of Citadel to balloon 500% when Disney/ABC shareholders get their Citadel shares next week, Bear Stearns analyst Victor Miller is telling clients that it could create a buying opportunity. He sees the possibility of the stock becoming cheap if Disney shareholders flood the market with Citadel shares they want to sell.
Come next Tuesday, as ABC Radio is separated from Disney into a separate company and then merged with Citadel, current Disney shareholders will receive 151.7 million new shares of Citadel, giving them 58% ownership of the company. The two are very different companies, so Miller figures many holders of big-cap, low leverage Disney may not want to hold onto shares of much smaller, more leveraged Citadel.
"We recommend investors take advantage of any disruption of Citadel's price to build a position, especially if shares break 5.50 [7.96 pre-deal price]. At this level, Citadel falls to a high 9.0x multiple on 2007 PF EBITDA and to a mid-9.0's level on 2008 PF EBITDA. And at 5.50, placing a value on the modestly compounding dividend (at 5.50 the yield will likely approximate 6%), one could argue that Citadel's 'core' price falls to less than one dollar. We see 35%+ potential return to shareholders by year-end should Citadel's shares fall to 5.50," Miller said in his note to clients.
