Lew Dickey started a bidding war for Citadel – and won


RBR-TVBR analysis
When a public company has no single controlling shareholder, it’s a pretty good bet that making a bid that tops the Wall Street trading price will put the company into play. So when Cumulus Media CEO Lew Dickey offered $31 per share for Citadel Broadcasting he began a process that put the board at Citadel under ever-increasing pressure to sell.

Lew ultimately had to up the ante, but he won the game. We hear that Entercom’s David Field bid aggressively for Citadel, which is not really surprising since he had been outbid for the ABC Radio assets by none other than Citadel, which won them from Disney in 2006 in an all-stock deal valued at $2.7 billion. How times have changed, since the sale price for all of Citadel, including the ABC Radio assets and the original Citadel that Forstmann Little acquired for $2 billion back in 2001, are now going to Cumulus for around $2.5 billion in cash, stock and debt assumption.

Not wanting to let go of the company, we hear that Citadel CEO Farid Suleman was trying to outmaneuver Dickey and Field with his own efforts to bring in new investors to inject capital and make a payout to the disgruntled shareholders. Don’t forget that virtually all of the stock and warrants at Citadel are held by distressed debt investors who bought Citadel debt on the cheap as it was heading into Chapter 11. When it emerged from bankruptcy court the former debtholders had become stockholders, but these are not guys who are interested in long-term investing.

A lot of “i”s have to be dotted and “t”s crossed, but Citadel is going to be sold to Cumulus. Under the $37 per share preliminary deal announced Thursday about a billion dollars in cash will be going to Citadel shareholders, with some options available for the cash-stock split.

Not only is Lew Dickey picking up a lot of stations – including some really big ones in such places as New York, Los Angeles and Chicago, but he’ll also have a lot of new shareholders at Cumulus Media. That’s not only from the Cumulus stock which will be distributed to Citadel shareholders, but also from Equity investments by Crestview Partners and Macquarie Capital. And Cumulus is in the midst of minting lots more shares to roll privately-owned Cumulus Media Partners (CMP) into publicly-traded Cumulus Media.

Since we ran some theoretical numbers on a Cumulus-Citadel combination the addition of CMP has boosted the size of Cumulus by $740 million. In short, you have a company with a total enterprise value of around $1.5 billion, Cumulus, acquiring one with a value of $2.5 billion, Citadel. That $4 billion company will be far and away the largest radio company trading on Wall Street. (CC Media Holdings, the parent of Clear Channel, has only a small float of stock trading on the pink sheets.) It will be a company of sufficient size to perhaps get big institutional investors to take a new look at the radio business. Also, with all of the new capital coming in, Cumulus is actually reducing its leverage, which should make its stock more attractive.

2011 is already shaping up to be an interesting year. The Bonneville-Hubbard deal broke the logjam in station trading. Fisher Communications is in play. And we have to wonder whether David Field will be on the hunt after once again ending up as the bridesmaid at a radio wedding.

RBR-TVBR exclusive background reading:

see post 9:55am – Friday 2/18/11:  Cumulus Media pitches the value of Citadel acquisition

Click here for RBR-TVBR’s exclusive analysis of the finances of a merged Cumulus-Citadel.

Cumulus Media has subsequently cut a deal to roll-up its partly owned Cumulus Media Partners.

Click here for RBR-TVBR’s exclusive analysis of how the Bonneville-Hubbard reset multiples.