What a merged Cumulus and Citadel would look like


RBR-TVBR analysis
It would not be a case of a mouse swallowing an elephant, but the proposal by Cumulus Media to acquire Citadel Broadcasting is certainly a case of the would be buyer acquiring a much larger entity. Perhaps a better analogy would be a horse swallowing an elephant.

Not all of the financial details of the offer were made public in the letter released this month by Cumulus, so we’ve had to make some assumptions in calculating numbers for the hypothetical merged entity. The letter doesn’t spell out where the $1 billion cash portion of the proposed buyout would come from. Our math assumes that half would be borrowed and the other half would be a new equity investment by Crestview Partners. The investment firm, featuring one-time radio CEO Jeff Marcus (known best for his career in cable TV), has pledged to invest up to $500 million in tandem with Cumulus to make radio acquisitions and it looks like this proposed mega-deal would require the entire sum.

We’ve made no allowance for divestitures which would be required by the FCC’s ownership rules, but they would be relatively insignificant. The two radio companies don’t compete in many markets – and particularly not in the very large Citadel markets.

What is clear is that Cumulus CEO Lew Dickey would improve his company’s financial picture with this deal. For some time now Cumulus has been operating under a suspension of the total leverage ratio and fixed charge coverage ratio requirements of its bank loans. Citadel, on the other hand, is far less leveraged as a result of the Chapter 11 process  that converted the majority of its former debt to equity (and left its former shareholders with nothing).

The stronger balance sheet at Citadel was noted by the board of directors at the company in its statement explaining why the overture from Cumulus was rejected. “Cumulus has a highly leveraged balance sheet and is operating under a suspension of certain of its debt covenants that expires on December 31, 2010,” the statement said, adding that “Cumulus’ small equity market capitalization would require it to issue to Citadel shareholders more than twice as many new shares as are currently outstanding, before any additional shares that would be issued in any Cumulus equity financing.”

Here are some basic financial figures for Cumulus, Citadel and what a combined company might look like. WARNING: These calculations are based on some major assumptions which are spelled out in the notes. Also, there is no agreement at this point, so it is all strictly hypothetical anyway.

Cumulus Media and Citadel Broadcasting


Financial results trailing 12 months (Q4 2009 through Q3 2010)

All figures in millions of dollars







Net revenues








Debt 9/30/10**




Market cap***




* Cumulus calls it “station operating income” and Citadel “segment operating income,” but they are essentially the same
** Combined total assumes $500 million of new borrowing 
*** Assumes value of $31 per share for Citadel as offered by Cumulus, $4.50 per share for Cumulus and new equity investment of $500 million