Citadel, Round Two

[Element9]

(Like a bad penny) From Taylor On Radio: (6/8/10)

Citadel, having survived Chapter 11, issues new stock. According to the terms of the reorganization plan filed with the U.S. Bankruptcy Court in Manhattan, Citadel’s creating three new classes of stock representing a minority share that’s going to creditors. That stock can be bought and sold, but it’s a completely different issue from the previous “CDL” stock, when the company was controlled by Forstmann Little. Now the senior lenders own the company, and there will be 100 million shares of a new Class A stock, 100 million shares of a Class B, and 50 million shares of preferred stock. The Class B shares have limited voting rights, and they’re convertible into Class A shares. Check the Citadel SEC filing about the new stock registrations here.

Citadel may not declare bankruptcy again for a while, but then comes to mind the bromide: "Fool me once, shame on you, fool me twice, shame on me."

 

[SirRoxalot]

Oddly, the new issue of Citadel stock may be a better deal than the old stock. The company shed a huge chunk of debt. The income is no longer going directly to debt service. There are many Citadel stations that are making a decent profit, despite the Draconian cuts imposed by corporate by corporate in the run-up to bankruptcy.

The other side of the coin is that there's no track record of Citadel investing wisely in its product. Recycling Imus, cutting local talent, trying to tell sales people that their commissions should be cut because "radio sells itself, and they're just order takers", and essentially violating contracts by slashing vacation time, increasing both hours and duties, and cutting 401Ks are just a few examples of current management. BTW, how are current contracts affected by the bankruptcy? Do they all have to be renegotiated?

Talk about a pig in a poke. With the track record of the current management, I won't be putting my money into the "new" Citadel. Farid has yet to display any acumen as an operator. I'd wait at least a year to see what direction the "new" Citadel takes. Will it be an operator, will it sell off smaller markets to concentrate on the old ABC stations, will it remained diversified, or will it paint some lipstick on the pig and put the whole thing on the market? It's way too soon for me to trust them with my investment dollars.

 

[Stewy]

Agree E-9, agree. My question, though rather crudely posed, who got screwed this time? To my simple mind the finance "arrangements" these days are not much more than a shell game with the guy moving the shells (or paper in this case) being the only one that makes money. When "bankruptcy" becomes nothing more than a way to shed debt and then it's done again 24-36 months later, isn't that just a con? Isn't that illegal?

 

[TheBigA]

Talk about a pig in a poke. With the track record of the current management, I won't be putting my money into the "new" Citadel.

Current management was doing fine until the debt overwhelmed them.

You're also assuming these people will be staying for a long time.

The fact is they're investing a lot in multiple platforms of content, and putting together an interesting package of programming and services.

When "bankruptcy" becomes nothing more than a way to shed debt and then it's done again 24-36 months later, isn't that just a con? Isn't that illegal?

That's a funny question. Ask the stockholders in Continental Airlines. Based on what I've seen, I'd say the answer is no.

Hope springs eternal for investors. I'm following some penny stocks that have doubled in value in the last few weeks. That's all you need to do. Everything else doesn't matter. Have you checked interest rates for savings accounts lately?

 

[SirRoxalot]

Talk about a pig in a poke. With the track record of the current management, I won't be putting my money into the "new" Citadel.

Current management was doing fine until the debt overwhelmed them.

Uh, who was responsible for the debt that overwhelmed current management?

You're also assuming these people will be staying for a long time.

If they're gone, I may reconsider, depending on who replaces them.

BTW, as far as I know, we don't have any other techologies seriously challenge airplanes for long distance travel. Can we say the same for radio?

 

[davideduardo]

Uh, who was responsible for the debt that overwhelmed current management?

The economy?

 

[Element9]

David, your acumen is well known and highly regarded here, but let us not ignore the fundamentals and put the collapse of Citadel-ABC entirely on the downturn in the economy. I recall reading one of your recent posts on the LA board wherein you cite hypothetically (and perhaps realistically), the hazards of a person who might have similarly and knowingly over-extended him/herself in deciding to purchase a house in a posh LA suburb. There were egregious errors in judgment that were made when the Citadel-ABC deal was first put together. Alas, it's all water over the damn now. Carry on.

 

[TheBigA]

Uh, who was responsible for the debt that overwhelmed current management?

I'd say a lot of people, including the stockholders who voted for the merger, the Board of Directors, the management, and then you add the depression. No one seems to understand just how bad the economic crisis is right now. But the merger was not a decision made by one person.

There were egregious errors in judgment that were made when the Citadel-ABC deal was first put together.

I disagree. It's really not much different from the Cap Cities-ABC deal done 20 years earlier. That was a situation where David was buying Golliath, and they somehow managed to make it work. But the economy was very different.

 

[SirRoxalot]

There were egregious errors in judgment that were made when the Citadel-ABC deal was first put together.

I disagree. It's really not much different from the Cap Cities-ABC deal done 20 years earlier. That was a situation where David was buying Golliath, and they somehow managed to make it work. But the economy was very different.

20 years ago, radio didn't face the challenges from other technologies that were evident in 2005. There were lots of things that were very different 20 years ago. You can't really compare those two deals, or the business environment for radio in two very different eras.