Citadel: It's official

[Element9]

First, regarding "drunks who reek of vodka standing on the other side of the counter at Mickey D's," vodka has no aroma. Cheap vodka, perhaps. Good vodka, nyet!

As to Citadel, from the Buffalo-Niagara Falls-Rochester board:

According to the Wall Street Journal, as a creditor Disney holds an $11.2 million claim against Citadel. The Forstmann-Little equity holding is essentially wiped out.

JP Morgan-Chase and GE Capital are the major creditors (two of 70 according to previously published reports.) JPM-Chase these days holds a lot of shaky paper, including that of the Tribune Company.

Rather than having to service $2.1 billion in debt, Citadel now has a revised term loan of $762.5 million. Approximately $1,337,500,000 (63%) of debt is relieved.

Given the positive cash flow of the radio stations, happy days are here again. According to Suleman, nothing changes. Yet. After the first of the year, things may be different. You'll know trouble is brewing when the front door is replaced by a playground slid. Pardon the gallows humor, I've worled for a company that went through a version of this and literally have the t-shirt.

However, if just one of the wiped out shareholders files a lawsuit against Suleman and/or the board of directors, the procedings could take a different course.

Inside Radio

Yahoo Finance

Reuters

Regarding Forstmann, he didn't get a full haircut, although a bit more off the top than he'd like. The Wall Street Journal reports, "The filing is a blow to private-equity firm Forstmann Little & Co., which owns 28.7% of Citadel, according to the company's bankruptcy filing. A person familiar with the investment said the firm had invested $1.5 billion in Citadel but sold off a substantial portion of the stake over the years, leaving an exposure of about $250 million."

One might ask if Citadel's filing will create a domino effect causing Regent and Cumulus to follow suit.

 

[SirRoxalot]

How much of a haircut did Forstmann-Little actually take? They bought Citadel from Larry Wilson for $2.1-Billion and took it private. In 2003, they took the company public again and sold 141,530,000 shares. The IPO price was $19.00, but quickly went over $20. Let's keep the math easy and say that they sold 140-million shares for $20.00 ea. The amount of money Forstmann-Little took in was $2.8-Billion dollars. That's a $700-million profit.

Here's a link to the IPO history: http://moneycentral.hoovers.com/global/msn/factsheet.xhtml?COID=56948

Of course, they didn't sell all the shares. They retained a controlling interest until the Disney deal, where they "merged" the Citadel stock into the new company. Forstmann's share was 29% of the new company, and they've sold off a considerable amount of that stock since the merger. Even if they took the entire $250-million dollar haircut, they still made $450-million off the original deal - and they get to write of $250-million in tax losses for Forstmann-Little this year.

And you wonder why Teddy didn't dump more money into a bottomless debt pit that Farid created with the ABC purchase? Where's the upside? That would simply be throwing good money after bad, and Teddy didn't get to be a billionaire doing that.

 

[icycool7227]

It's the debt that's killing them because the owners of many overpaid for them.

Overpaying for something doesn't necessarily incur debt. I just bought a new car. I wanted certain things, so I essentially overpaid for it. I could have gotten the same car cheaper by taking what they had. But in any case, I paid cash, so I didn't incur debt. The price they paid for their stations didn't cause debt. The amount they financed caused debt. Two very different things. Put a big down payment, or take on equity partners, and you don't have a lot of debt. Charge the whole thing on your Visa card, and you have a lot of debt. That's the difference.

I stand by the view that broadcasting is expensive. It costs money to run transmitters, towers, and studios. Lot of capitol expense. Lots of insurance payments. If you have employees, there are lots of benefits to fund. Then there are the lawyers, accountants, and engineers. And the government regulation. Most of this isn't involved if you have a McDonald's franchise or a plumbing company.

Thank you Big A I'll remember that. I have a lot of trouble with buying stuff and debt on cards myself and I'll especially remember that when it comes time for me to get my 1st car too as well.

Add in the fact that some stations also pay for streaming and then they have a whole lot of money and responsibilities to take care of then don't they?

 

[TheBigA]

And you wonder why Teddy didn't dump more money into a bottomless debt pit that Farid created with the ABC purchase?

If Ted owns controlling interest in the company, then HE was the one who created the bottomless debt pit, not Farid. There were four people on the board who work for Fortmann. Farid was hired by Ted, and worked directly for him. This mess was Ted's making, and now he drops it like a hot potato. That's why they went bankrupt. Sure he can write it off and walk away. But that's not supposed to be how the game is played. The goal is to MAKE money, not lose it.

 

[SirRoxalot]

This mess was Ted's making, and now he drops it like a hot potato. That's why they went bankrupt. Sure he can write it off and walk away. But that's not supposed to be how the game is played. The goal is to MAKE money, not lose it.

Teddy made his money - on the original IPO. Not to mention the radio profits reaped before the IPO, and a share of the profits after the IPO, but before the Disney debacle.

The Disney "merger" was an attempt to grab the brass ring. Teddy maintained a chunk of the "new" Citadel in hopes that it would pay off. It didn't. He didn't have controlling interest of the merged company, and he lost his stake. Overall, though, Teddy DID make money - and the bankruptcy just gives him an end-of-year write-off. He's also one of the major unsecured creditors. We'll have to see how that plays out in the end. It could be chump change, or it could be stock in the "new" company, which won't be saddled with crushing debt.

 

[TheBigA]

You can't be on the board of directors of a company and not have responsibility.

There are a million stockholders who got wiped out. I imagine at least one of them is pissed. From what I hear, some of them are employees. This will not be quick or easy.

 

[HowardMBurgers]

Agreed. With a publically-traded company, there is no one guy at the top making all the decisions. No doubt the board of directors and a shareholder vote was required before Citadel could approach, bid or purchase the ABC Radio group. Chances are the decision or approval of the transaction involved hundreds of individuals, not one person.

The plum was that Citadel managed to negotiate almost one billion of debt forgiveness right out of the gate. My hat is off to anyone who could pull off that sort of deal!

Sure there may be additional cuts before all is said and done, but had they not negotiated their obligations lower, the cuts could have been much worse.

 

[TheBigA]

Agreed. With a publically-traded company, there is no one guy at the top making all the decisions. No doubt the board of directors and a shareholder vote was required before Citadel could approach, bid or purchase the ABC Radio group.

That is correct. They polled shareholders of both companies on the deal. Unlike some aquisitions, this one required a full vote of all shareholders. To "blame" Farid ignores all the people who were involved. This isn't to defend him, but there is shared responsibility here.

I don't get this view that companies todays are monocracies or dictatorships, where one guy makes all the decisions and therefore takes all the blame. Corporations are not structured that way, and some times it's specifically for things like this. I wonder how many critics of Citadel and corporate broadcasting in general actually own stock in some of these companies through mutual funds. Apparently some mutuals still had stock in Citadel up until Sunday. I wouldn't want to be a retired person depending on that income.

 

[Nostalgia]

A strong CEO will "work" the board just like the Prez lobbies, cajoles, wheels and deals the congress. He is the guy who sets the agenda, make no mistake. Also, many times the board of directors are not industry people. Friends and family of the founders, representatives of holders of large blocks of stock, ect each sometimes with an agenda, other times just a rubber stamp for the big boss. And the shareholders, with the exception of institutional investors who are professionally managed, individual stockholders like me barely look at all the crap they send along with "proxy" forms signing over my votes to them, or automatially voting the "suggested" way (not kidding on that one).

The CEO gets the big bucks because he is the visible head of the corporation and steers the corporate ship. Please give me some examples of big time corporate radio CEO's whose agenda was rebuffed by their board or stockholders, especially during the boom years when his ideas were making them all rich! They may be paying a little more attention now. Like Big A said, I bet there are a bunch of pissed off stockholders who wish they had read their annual reports and actually mailed in their votes instead of signing the proxy statements. But in our little time machine I bet they were ready to anoint some of these guys with sainthood as long as the money was rolling in. Further, to reject the CEOs agenda, a no confidence vote if you will, will send him out the door pulling the ripcord on his golden parachute. It does happen but rarely and the guy really had to screw up or get caught doing something naughty.

I am not a corporate basher or consolidator hater, I am just saying some folks need a little reality check when they say these CEOs were "really not at fault, their boards and shareholders agreed with them on all of their decisions". These guys got to the top just like polititions, making friends and allies, scratching others backs and reminding them when he needs his back scratched, and all the other metaphors you can dream up about empire building. Again, not that its wrong, but please recognize it does exist. Farid et al is the boss.

 

[HowardMBurgers]

I don't think anyone is claiming that any CEO's of a company in trouble aren't in some way culpable. Being the public target and one could argue, a figurehead, is why many are compensated accordingly.

Rick Wagoner formerly of GM is a prime example. Wagoner pushed against the GM board and the US government, fighting the chaptel 11 filing and look what that got him.

My point being- boards and shareholders fire CEO's and corporate officers all the time. It's simply incorrect to cast blame for the success or failure on an organization solely on the CEO.

 

[SirRoxalot]

Nobody is supposed to know the company's business better than the CEO. I agree with "Nostalgia" that CEOs work hard to pack the board with allies. In most companies, CEOs sell the board on the direction of the company, not vice-versa. There typically has to be real danger to the company before the board steps in and demands a change in direction.

 

[TheBigA]

You're making generalities. Anyone familiar with the situation knows those don't apply in this case.

 

[HowardMBurgers]

Nobody is supposed to know the company's business better than the CEO. I agree with "Nostalgia" that CEOs work hard to pack the board with allies. In most companies, CEOs sell the board on the direction of the company, not vice-versa. There typically has to be real danger to the company before the board steps in and demands a change in direction.

That's not the case at all. Every larger corporation requires board and, in many instances shareholder approval, particularly with larger transactions.

True that there are some CEOs that use the system to stack the board to follow a particular strategic way of thinking, but it's not like the CEO has the power to do a clean sweep of an existing board. The function of boards of directors are to be a firewall and protect the company plus provide guidance to the CEO and corporate officers. Ultimately however, the shareholders are the real owners.

Speaking of which; I asked a friend of mine who owned a bit of Citadel stock whether there was a shareholder vote prior to the aqusition of ABC Radio, he confirmed there was. He voted yes. So are you going to blame the shareholders for the demise of radio too?

 

[SirRoxalot]

Speaking of which; I asked a friend of mine who owned a bit of Citadel stock whether there was a shareholder vote prior to the aqusition of ABC Radio, he confirmed there was. He voted yes. So are you going to blame the shareholders for the demise of radio too?

Shareholders have certainly played a role in the demise of radio. Too many shareholders, and financial advisors, have been looking for a quick profit instead of a long term investment. Advisors made more if there were more trades. Many companies made decisions based on turning a quick buck by buying and selling stations, or operating to maximize short-term profits instead of long-term viability. Stockholders wanted to buy low, sell high, and take the quick profit, regardless of the long-term effect on the company.

 

[bossbill]

I am (was) a Citadel shareholder, not through a mutual fund. I did not receive prior notice of any kind before the Chapter 11 filing. I knew of the expected filing and the filing via the trades. I also knew that employees were told some months ago by management not to buy Citadel through their 401K.

I speculate that there could be a case made for a Class Action lawsuit, but suspect that it wouldn't have legs.

 

[TheBigA]

I am (was) a Citadel shareholder, not through a mutual fund. I did not receive prior notice of any kind before the Chapter 11 filing.

Shareholders were not involved in that decision. Would you have voted for a decision that would have wiped out your investment? Farid and Ted did. So did the other board members who own stock. In their case, their responsibility as company officers was greater than as individual shareholders.

However, all stockholders voted on the ABC merger, which set up this current situation. Had they not bought ABC, they would not have filed for bankruptcy.

 

[davideduardo]

Shareholders have certainly played a role in the demise of radio. Too many shareholders, and financial advisors, have been looking for a quick profit instead of a long term investment. Advisors made more if there were more trades. Many companies made decisions based on turning a quick buck by buying and selling stations, or operating to maximize short-term profits instead of long-term viability. Stockholders wanted to buy low, sell high, and take the quick profit, regardless of the long-term effect on the company.

Substitute "steel companies" for "radio" or "stations" and this could have been written by Eugene Debs.

 

[SirRoxalot]

Substitute "steel companies" for "radio" or "stations" and this could have been written by Eugene Debs.

Oh, please do cite me a Eugene Debs quote on that subject. I'm apparently not familiar enough with his writings.

 

[TVradioguru]

Shareholders have certainly played a role in the demise of radio. Too many shareholders, and financial advisors, have been looking for a quick profit instead of a long term investment. Advisors made more if there were more trades. Many companies made decisions based on turning a quick buck by buying and selling stations, or operating to maximize short-term profits instead of long-term viability. Stockholders wanted to buy low, sell high, and take the quick profit, regardless of the long-term effect on the company.

Wow! Apparently you don't own any shares of stock! Yes indeed.. People buy shares of stock (Shareholders) at low values hoping the shares will quickly rise so they can make money on their investment. It's been that way since the beginning of corporations.

Here's another shocker to add more dismay to your world.. Probably 75% of the public shareholders of publically traded coporations are either not involved in, nor have ever worked in the business they (partially own). Yep, that means there are "greedy" people out there purchasing portfolios of stock with the hope of making money on their investment. In the case of the origins of radio; that would mean the shareholders of the company that put the first radio stations on the air, Westinghouse. So I guess that means in a way.. evil shareholders started screwing up radio since the beginning!

 

[TVradioguru]

Substitute "steel companies" for "radio" or "stations" and this could have been written by Eugene Debs.

Oh, please do cite me a Eugene Debs quote on that subject. I'm apparently not familiar enough with his writings.

Eugene Debs was a five time Socialist candidate for the Presidency and advocate for industrial unionism. Debs was a well known anti-capitalist.

One of his more infamous quotes from 1905 was:

“Too long have the workers of the world waited for some Moses to lead them out of bondage. I would not lead you out if I could; for if you could be led out, you could be led back again. I would have you make up your minds there is nothing that you cannot do for yourselves.”