After Citadel Broadcasting announced a tentative deal to be acquired by Cumulus Media for $37 per share, several reports put the total price at $2.4 billion. Our first cut came out to a bit above $2.5 billion. The key issue is how much debt is involved and what happens to it – so let’s check with the experts.
Wells Fargo Securities high-yield bond analysts Bishop Cheen and Davis Hebert have been working the numbers. “We think an acquisition of Citadel could run $2.62 billion and require $1.64 billion of new cash capital for Cumulus,” they said. That cash is seen as coming from a $500 million equity investment by Crestview Partners and $1.14 billion in new bond debt.
$1.557 billion of the $1.64 billion in new cash would go to pay the $30 per share cash portion of the buyout of current Citadel shareholders, based on 51.9 million shares outstanding. The call premium on Citadel’s relatively new $400 million of 7.75% bonds would be $31 million and fees on the deal would cost Cumulus $52 million. That all adds up to the $1.64 billion in cash to close the deal.
Then there’s the $750.3 million of Citadel bank and bond debt to be assumed or refinanced, or $696.5 net debt as of September 30, 2010 after subtracting cash on hand. The remainder is 76 million new shares of Cumulus stock to be issued to Citadel shareholders (based on the 2/17/11 stock price), getting you to the $2.62 billion total price calculated by the analysts.
For the 12 months ending September 30, 2010 (the company has not yet reported Q4 results) Citadel had $743.3 million of revenues and $263.9 million of broadcast cash flow (BCF) as calculated by Cheen and Hebert.
So, if you want to know the cash flow multiple on this deal looking back to BCF as of the end of September, divide the price by BCF and you get a multiple of 9.9. That, however, does not reflect Q4, which was a strong quarter for all radio groups, so the trailing multiple is already lower than that and Cumulus is no doubt looking more at what the multiple is expected to be at closing after several more months of revenue and BCF growth.
RBR-TVBR observation: What Wall Street likes about this deal, on both the stock and bond side, is the de-levering impact for the surviving company, Cumulus Media. Lew Dickey starts with a company levered 7.5 times (debt to 12 month EBITDA as of 9/30/10), rolls in CMP levered 9.4 times, but then adds Citadel, levered 3.1 times, and a half billion bucks of new equity capital and winds up with a much larger company that Cheen and Hebert see being levered only 6.9 times pro forma based on their estimates for 2011.