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Cumulus Soon to Own WEDG, WGRF, WHTT

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Element9

Radio-Info bulletin: Cumulus buys Citadel for $37 a share.

Three weeks after the "exclusive negotiations" were announced, Cumulus has the $2.4 billion deal that it sought. However, the terms are different now: Citadel shareholders can get the entire $37 per share in cash, or in Cumulus stock, at the rate of 8.525 shares of "CMLS" for each share of Citadel. The merged company run by Lew Dickey would be 572 radio stations in 120 mrkets. Cumulus says the merger gives it "a true national platform" and "the critical mass necessary to effectively compete and invest in the local digital media marketplace." From a financial perspective, it is accretive for Citadel, which anticipates synergies - cost savings - of $50 million. Cumulus also acquires the Citadel Media syndication operation. Cumulus is backed by Jeff Marcus-run Crestview Partners, and the deal is expected to close by year-end.

***

If I held Citadel paper, I'd take the cash. Now. If there was one radio company that could make Citadel look good, it would be Cumulus.
 
Anybody in sales with another opportunity will be out the door ASAP. Imagine "Big Brother" watching over your sales meetings via Skype. Like corporate has a clue on the situation on the ground? Talk about castrating local managers.

The cost to Cumulus is $2.4-Billion. Does that number sound familiar? That's what Citadel paid for the ABC stations, and choked on when they went bankrupt. Is money cheaper now than it was then? David Field is laughing himself sick.

But don't worry, I'm sure that Cumulus will mean it when they come in from corporate to introduce themselves, and say things like "We bought you because you're doing such a great job. We don't want big changes. We just want to help you create better product, and our growth will mean more opportunities for everyone."

Only one problem. Those opportunities won't be in radio for a LOT of people.
 
David Field is laughing himself sick...

As soon as he removes the silver spoon from his mouth and asks Daddy if he can laugh.
 
As we learn more out about the Citadel-Cumulus deal, the more it appears the people in the front lines at Citadel and Cumulus radio stations across the country in markets large and small will be affected. Taylor On Radio, The Wall Street Journal and Jerry Del Colliano reveal more details of deal. The total debt appears to be not $2.4 billion, but $3 billion dollars as Cumulus borrows $500 million to pay off previously accrued debt.

Every sales person, jock, programmer or traffic director working for a company that's paying down a high amount of debt lives with a level of anxiety. It could be the people at 50 James Casey are used this, but after awhile working in this kind of environment takes a toll. This is not trivial, "hey, ain't that a bitch" stuff. Sure, you do your job as best you can one day at a time, but the threat of each day being your last doesn't exactly make for a pleasant state of mind. Citadel employees are no strangers to challenging circumstance, but Cumulus is a company that runs a centralized, stiflingly tight ship commanded by multiple Captain Queegs, foremost among them, Lew Dickey.

If there's any consolation, some employees might find another job or add to their savings before the deal is expected to close in the last quarter of this year. Citadel managers may make some additional money from retainer contracts awarding them cash to stay on through the transition from Citadel to Cumulus.

Revenue for the enhanced Cumulus will have to be ratcheted up to maintain onerous debt service. Managers will be pressed to increase billing and lower expenses. Anybody who's been in radio for a year knows how expenses most easily lowered. Clusters and stations that are "revenue rich" will not be spared the wrath of the Dickeys.

Sadly, this play has been before and it doesn't have a happy ending. Imagine working for a company that was $2 billion in debt, surviving the staff cuts and salary-benefit cutbacks when the company emerged from bankruptcy. You're breathing a small sigh of relief, only to learn that another debt-burdened company has plans to purchase your company.

Same lawn, different dog.

Working for Farid may have been a challenge, but Cumulus is a company known to use divisive tactics to compel its employees to perform, believing that the best way to lead is by intimidation rather than inspiration.

Another question related to revenue: will Cumulus retain the rights to the Bills when the contract renewal comes up? Will the NFL and Bills have a season in 2011?

As to Entercom, its debt is manageable. The EBITDA for the company appears very healthy. Its bonds are not due until 2012. Entercom looked at Citadel, the numbers didn't add up so they walked away. David and Joe Field may be the ultimate winners in a deal they didn't do. The Field family owns a majority of Entercom stock. They are very smart people. And Entercom's Buffalo cluster, though challenged, is healthy.

Town Square, which emerged from the bankrupt Regent, looks like the second healthiest cluster in Buffalo but might be positioned as the strongest cluster in Buffalo with four Class Bs, each having a strong format. Imagine if, during a time of stress and transition of Citadel to Cumulus, Jack took a page from CBS New York and Chicago and added live, local talent to a few key dayparts.

These are precarious times.
 
Element9 said:
Every sales person, jock, programmer or traffic director working for a company that's paying down a high amount of debt lives with a level of anxiety.
Click to expand...

That's an interesting statement. Do you know how much debt the US government has? Do you know how much debt New York State has?

Do you live with anxiety?

SirRoxalot said:
The cost to Cumulus is $2.4-Billion. Does that number sound familiar? That's what Citadel paid for the ABC stations, and choked on when they went bankrupt. Is money cheaper now than it was then?
Click to expand...

Actually yes. The interest rate is lower. So Cumulus is paying for ABC and getting the previous Citadel stations as a bonus. Which is about what most of them are worth.

Plus consider that Citadel did most of the cost cutting already. They redid all their contracts after the bankruptcy.

Don't misinterpret this as me saying this was a good deal. Unless they sell off some assets, donate some dog AMs to charity, and continue economizing at some of the weaker stations, they could go the same route as Citadel. But I think they've been doing their homework. They took baby steps when they bought Susquehanna. They learned how to absorb debt. And they have far more understanding lenders than Farid had.

Element9 said:
Cumulus is a company known to use divisive tactics to compel its employees to perform
Click to expand...

That's how CBS worked under Mel. I expect Cumulus to run Citadel as a separate competing company. The idea is that competition breeds creativity.
 
TheBigA said:
In this article, an analyst says the new Cumulus debt load is similar to Entercom:

http://www.rbr.com/media-news/wall-street/analyst-looks-at-the-citadel-sale-multiple.html
Click to expand...

As they say in the commercials, "Not exactly". What the analyst said is that the Citadel acquisition is at approx. 9x the value of Citadel's EBITDA. It doesn't say anything about the existing Cumulus debt load - for either iteration of Cumulus. In other words, Citadel post-bankruptcy had about the same debt burden as Entercom. The debt load of the new enterprise is likely to be higher since Cumulus had an enterprise value of about $796-million, and debt of about $611-million.

Now, they'll add Citadel's debt, and the $500-million from Crestview Partners to the debt side. They'll add about $2.4-billion from Citadel to the enterprise value. That puts the combined company in considerably worse financial condition than Citadel alone was post-bankruptcy. The good news is that the deal may have saved Cumulus from bankruptcy in the short term. We'll see how the long term plays out.
 
Debt service. Again. When I was given my fond farewell from Citadel I was told that local and national cuts in staffing were in large part due to "the severe debt service of the company." As an employee and good soldier that did his job at commendable levels in four separate areas of the cluster's operation, I took the manager at his word. When/if this sale is approved later this year, Cumulus will be a larger company, no doubt with just as heavy debt service as Citadel had before declaring bankruptcy and wiping away two thirds of its debt. I hope the soon to be Cumulus employees, many still good friends, don't ever have to pick up their final paycheck and hear the words "severe debt service of the company." It would have been more amusing to hear the manager use the classic line from Animal House, "Hey, you fu@ked up, you trusted us!"
 
Monsignor Pastrick...

You spell it out well...

It's your final scene that tells the story...one I have watched for years...Radio isn't fun & entertainment anymore..it's a business.
And yes..too many trust for their passion...and too many get screwed because they trusted. Years ago I gave up trusting, at the expense of my passion...but the funny thing is--- I never lost the passion! (that's why I'm here on the boards) I just can't do anything about it, and at the moment...not sure I want to. This too shall pass.

That's all, for now. thank you Mr. Pastrick.

HDBG
 
Looks like Mr. Pastrick hasn't lost his touch.

"Hey, you fu@ked up, you trusted us!" should be the headline on every quarterly report issued by the "new" Cumulus, and on every prospectus handed to prospective shareholders. It sure should have been imprinted on the worthless stock certificates of the pre-bankruptcy Citadel.
 
No "Sir Rox" he hasn't lost his touch!! I'm surprised he isn't more relentless here on the boards!! ;D

Pastrick, as on-air professional (whom I've never met, but lives in my backyard, and I regarded as an air talent) that also got screwed in the deal, I see his input as positive as opposed to the negative...which garners more respect from me (as an optimist fighting reality). "Old School", if you will....we want GOOD radio...but at what cost.

HDBG
 
heydaybegone said:
Monsignor Pastrick...

You spell it out well...

It's your final scene that tells the story...one I have watched for years...Radio isn't fun & entertainment anymore..it's a business.
And yes..too many trust for their passion...and too many get screwed because they trusted. Years ago I gave up trusting, at the expense of my passion...but the funny thing is--- I never lost the passion! (that's why I'm here on the boards) I just can't do anything about it, and at the moment...not sure I want to. This too shall pass.

That's all, for now. thank you Mr. Pastrick.

HDBG
Click to expand...

You said it well too. Sums up my feelings too.

Mike
 
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