The Cobra Meets The Rattlesnake

[Element9]

The Wall Street Journal reports Citadel's scale-skinned CEO isn't too happy about being challenged by one of his own species known as Aurelius Capital Management.

RBR.com reports: "Citadel Broadcasting Corporation has asked the judge overseeing its Chapter 11 bankruptcy proceeding to void stock purchases by Aurelis Capital Management and other entities associated with its Senior Managing Member, Mark Brodsky ... Aurelis disclosed in an SEC filing that since late March it has acquired 16.7 million shares of Citadel’s common stock for a total of $1,213,477.13. That’s an average of just under 7.3 cents per share." If nothing else, Aurelius bumped up Citadel's share price. Sell! Sell!

And in Michigan, where Citadel once dismissed an employee afflicted with cancer and canceled his medical insurance, the mongoose enters the fray: From today’s T-R-I Newsletter: Michigan’s attorney general tells a federal bankruptcy court in New York that Citadel “failed to file its 2008 Michigan Business tax return" and it has doubts “as to whether the debtor’s proposed plan (to re-organize and flush away two-thirds of its debt) is offered in good faith.” Michigan is an unsecured creditor in the Citadel bankruptcy proceeding.

 

[jerry367]

Couldn't happen to a bigger bunch of scumbags.

 

[SirRoxalot]

Aurelius charges that the valuation of the company filed in the bankruptcy documents seriously undervalues the company, especially in light of recent income trends. Aurelius also says that Citadel management will get stock options worth more that $100-million dollars under the bankruptcy plan. Pretty nice reward for driving a company into bankruptcy, huh?

Aurelius says that the reorganization plan is based on a “stale valuation”. “If the Debtors’ enterprise was valued properly,” Aurelius insisted, “there would be more than adequate value to provide a full recovery to all creditors as well as a substantial distribution to Holders of Citadel Interests [the shareholders].”

See the RBR report here: http://www.rbr.com/radio/23567.html

 

[heydaybegone]

On a side bar: (any investors or hard core business types feel free to chime in - I didn't change careers for nothing)

Pretty nice reward for driving a company into bankruptcy, huh?

Sir Rox is NOT INCORRECT. All stock offering prospectuses will disclose the key directors "vested position". They are usually, if not always, protected against such failure. They will always walk away in a pretty fashion...assuming no-wrong doing (cooking the books). To get emotionally attached to that is a caveat emptor. Yes, the pain and suffering goes to the lower echelon on down...but hey...if the lower echelon had done their homework before employment there, they would have known who was going to get the short end. The info necessary is public, just take some time to research it. The big picture is that radio groups are no different than Enron..............................

 

[TheBigA]

The big picture is that radio groups are no different than Enron..............................

Oh I'd suggest there's a big difference, in that Enron execs were convicted of crimes. So far, no one in radio has even been charged.

I agree with the view that Citadel is undervaled. But what we think, and what the banks say are two different things. It's in the best interests of the lenders to repossess undervalued property in order to sell it for profit at a future date. If you've ever worked in a pawn shop, that's where the real money is made.

As I've said many times, these particular managers didn't drive Citadel into bankruptcy. They did what their Board and stockholders told them to do. They bought what were considered to be highly valued properties that would improve the status of their company. It was only after taking possession that they found they bought a pig in a poke.

 

[Element9]

It was only after taking possession that they found they bought a pig in a poke.

So much for due diligence, eh? Sorry, don't buy that argument. Keep in mind that it was Suleman who put together Citadel's ill-fated purchase of ABC Radio using the abstruse constructs of a Reverse Morris Trust. In very simple terms, it boiled down to "we'll buy you but you'll really own us." Suleman's words upon filing for bankruptcy protection reveal overwhelming hubris, if not stupidity, "If I'd had known, I would have sold, not bought."

So Farid was a victim of his own inflated ego. He (and his minions) constructed the deal to purchase ABC Radio. Now he's constructed a bailout that could reward him and senior management of Citadel with $100 million bonuses in stock options and $40 million in tax breaks the company will receive from the federal government if Citadel makes it through the bankruptcy process. Another nice bailout. As SirRoxalot offers, a fine return for running the company into the ground.

To be clear, Aurelius Capital and Mark Brodsky are not to be confused with the Little Sisters of the Poor. There's a reasonable chance of US Bankruptcy Judge Burton Lifland dismissing Aurelius' purchase of Citadel's stock. More will be known May 12. Aurelius may be paid a princely sum (aka corporate extortion) to "walk away," as we've seen in the Regent Communications bankruptcy proceeding.

To say "the info is all there and it's public" and imply that (Citadel and all radio) employees should have known what they were getting into, denies protocols of ethical business conduct and human decency. To be sure, the business of radio and television has always been demanding. Only the strong, talented and thick-skinned survived. Even then, some very talented men and women chose to leave the business. More often than not, as talented and productive as they were, it was their decision to leave. They were not purged or downsized to protect the well-being and fortunes of the CEOs and COOs.

It's the role of the Attorneys General, the SEC (which just brought charges against Goldman Sachs) and regulatory agencies to make sure the wolves aren't guarding the hen house. A few more states' AG's may take note of Michigan's AG's examination of Citadel's tax accounts. In cash-strapped NY state where Citadel owns three clusters, the AG and state tax department might pay particular note.

 

[SirRoxalot]

As I've said many times, these particular managers didn't drive Citadel into bankruptcy. They did what their Board and stockholders told them to do. They bought what were considered to be highly valued properties that would improve the status of their company. It was only after taking possession that they found they bought a pig in a poke.

The Board and stockholders told Farid to "buy" ABC from Disney? Or did Farid & Co. convince the Board and stockholders that buying ABC was "the way forward", and that Citadel would either have to grow or be absorbed?

Your memory of what transpired seems to ignore that Citadel outbid several other companies for the ABC properties. The deal was SOLD to the Citadel board and stockholders by Farid & Co. To quote Farid in a Citadel press release:

“By joining forces to form Citadel Communications, our new company can continue to deliver on Citadel’s impressive record of success as well as pursue many exciting growth initiatives in the future,” said Suleman. “We look forward to welcoming our talented new colleagues at ABC Radio who have a long history
of strong market performance, and are eager to work together to integrate ABC’s top-notch assets into our new strategically enhanced radio group.”

How many of those "talented new colleagues" were purged during the "integration" of assets? What Farid's saying is that he would have cashed in earlier if he'd known that the cuts would come in revenue, not expenses. Farid's mantra has always been "growth". He and his team have yet to display any talent for running radio stations. They're all about "the deal", and have failed miserably as operators.

 

[TheBigA]

It was only after taking possession that they found they bought a pig in a poke.

So much for due diligence, eh? Sorry, don't buy that argument.

Take it to the judge. Obviously you wouldn't be the first. Unless you think the judge is on the take.

If Farid is being unfairly compensated in this, fattening his wallet, while cheating the public, that would seem to me to be worth bringing to the attention of the judge.

It might be an interesting case for a member of the public, without any personal money in the pot, went to the bankruptcy judge on the basis of how this has affected the public interest. But you're not going to do that. Most people like you never take real action. You just whine and complain on message boards.

 

[TheBigA]

The Board and stockholders told Farid to "buy" ABC from Disney? Or did Farid & Co. convince the Board and stockholders that buying ABC was "the way forward", and that Citadel would either have to grow or be absorbed?

We've gone through this many times. Farid was a bit player. Ted Forstmann was the majority stockholder and an experienced hand at this kind of stuff. He'd done it several times before.

Your memory of what transpired seems to ignore that Citadel outbid several other companies for the ABC properties.

Your memory seems to ignore that while the bidding process was going on, they became aware of the declining values of the properties, and were allowed to revise their bid. Too bad they didn't have a crystal ball to know what they discovered was merely the tip of an iceberg.

To quote Farid in a Citadel press release:

Now you're quoting press releases? Oh come on! You don't get facts from press releases.

He and his team have yet to display any talent for running radio stations. They're all about "the deal", and have failed miserably as operators.

As I've often said, there is nothing in the FCC rules and regs requiring an owner to know anything.

 

[TheBigA]

It's the role of the Attorneys General, the SEC (which just brought charges against Goldman Sachs) and regulatory agencies to make sure the wolves aren't guarding the hen house.

So you're comparing Citadel to Goldman Sachs? Really? If you're going to do that, you need to begin by determining who defrauded who. I think if you're going to do that, a pretty good case could be made that Disney defrauded Citadel into paying too much money for their stations.

My assessment, and I know you're not going to agree, is that the TIMING of this deal is the only thing that led the company, and similar companies, to bankruptcy. The only companies in this situation are those that made large purchases at the crest of the market in 2005-6, as advertising revenues were in free fall, and station prices were at their peak.

 

[heydaybegone]

Holy Toledo! (not a major market)...this one will be going outside soon!!

I personally benefited from the Disney deal. (woo hoo - take the cash before it's gone)(full disclosure)

I am baffled that so much of this thread reflects the way these BUSINESSES are OPERATED (not the individual stations), as opposed to saving the industry as a whole!! Radio has always been a purse string business. Welcome to Wall Street!! Our PASSIONS for "good radio" don't exist, when someone else holds the CHECKBOOK!! I DARE anyone to dispute this :-[
What we have...is some corporate Wall St., publicly traded companies, involved in Main St America. What you don't like is wear and tear it is taking on the people, local economy, and everything else this downturn has created! I AGREE (put the baseball bat away)!
There is no control as to what transpires in the courts...so may I suggest (tail between legs)...that the phenominal minds posting on this thread (and YES, you are the future of the business), focus more on survival strategy than the corporate BS!! (damn - that was the way it was done in the last 2 decades!!) The future of broadcasting is NOT in the courts...it's in the real world...technology, lifestyle, and what can be done to make "broadcasting" viable again.
That is all

 

[Element9]

It was only after taking possession that they found they bought a pig in a poke.

So much for due diligence, eh? Sorry, don't buy that argument.

Take it to the judge. Obviously you wouldn't be the first... Most people like you never take real action. You just whine and complain on message boards.

In a way, I'm pleased you hold this opinion. So little do you know about me, my friend. As well as it should be.

 

[TheBigA]

In a way, I'm pleased you hold this opinion. So little do you know about me, my friend. As well as it should be.

I'm not interested in knowing about you. I'm interested in results.

 

[Element9]

Feh! Perhaps you'd like "a Michigan" my friend?

 

[TheBigA]

First you compare Citadel to Goldman Sachs.

Now, broadcasting and hot dogs.

Good luck using those skills in a court of law.

Hey! I can see Russia from my porch!

 

[Element9]

Holy Toledo! (not a major market)...this one will be going outside soon!! I personally benefited from the Disney deal. (woo hoo - take the cash before it's gone)(full disclosure) I am baffled that so much of this thread reflects the way these BUSINESSES are OPERATED (not the individual stations), as opposed to saving the industry as a whole!! Radio has always been a purse string business. Welcome to Wall Street!! Our PASSIONS for "good radio" don't exist, when someone else holds the CHECKBOOK!! I DARE anyone to dispute this :-[
What we have...is some corporate Wall St., publicly traded companies, involved in Main St America. What you don't like is wear and tear it is taking on the people, local economy, and everything else this downturn has created! I AGREE (put the baseball bat away)! There is no control as to what transpires in the courts...so may I suggest (tail between legs)...that the phenominal minds posting on this thread (and YES, you are the future of the business), focus more on survival strategy than the corporate BS!! (damn - that was the way it was done in the last 2 decades!!) The future of broadcasting is NOT in the courts...it's in the real world...technology, lifestyle, and what can be done to make "broadcasting" viable again.
That is all

Well HDBG, you make a good observation and you raise an interesting question as to "saving the industry as a whole." I'd suggest that the radio glass can be half full and I'd like to believe that it is, except that we're talking about Citadel and Farid Suleman. For those savants who "demand results," Suleman has a track record of turning in less that spectacular results. Except perhaps for himself.

Had one purchased a thousand shares of Entercom a year ago March, he/she would have realized more than a tenfold return. Of course, had you bought ETM (and mast any other radio stock) three years ago, you'd under water. Had one bought Citadel stock, you'd have been left holding a steaming plate of donkey sh*t only to find the CEO and his wrecking crew had cooked up a sweet deal that rewarded them for their ineptitude. Enter players such as Aurelius Capital who intend to "dip their beak," to quote a line from The Godfather and perhaps make the Citadel brass and their attorneys just a little anxious.

Unlike Citadel, Entercom is a well run company (not without its problems and pretenders) largely held and controlled by the Field family, which has melded old school money (Joe, the quiet buttoned down gentleman) with Wall Street savvy (David, the dude with a five thousand dollar suite and no socks.) I mention Entercom because there's a connection with Citadel. Years ago, Farid Suleman was a little too smart for his own good and reportedly bid up the price of Buffalo's marginal signaled 107.7. Suleman was so proud of himself. He'd tell anybody who'd listen that he got the better of Joe and David Field. It's said karma is a bitch. The Field family reportedly returned the favor when Suleman went fishing for the ABC radio stations.

As I've written before, I don't have a dog in this fight. I'm an observer who finds the developments in the political, financial and communications arenas very interesting, to say the least. The Citadel deal stinks like the Tonawanda refineries on a humid August afternoon. A little localism there for the out-of-town savants to savor while ordering up a Michigan at Ted's.

There are a many talented people in Buffalo who do good radio and can make it even better, but they're often constrained by (bad) decisions made by their CEOs. It's a challenge to be creative and take chances on the local level when the sword that hangs over your head is wielded by a corporate level idiot. Some posters from outside the Buffalo market may not realize that two of the three major national operators in Buffalo have filed for Chapter 11 protection. It's not because Buffalo is a bad radio market. To be sure, it's a tough market and the population is aging and shrinking. But the failure of Regent and Citadel, especially as it affects the employees of their Buffalo clusters, is the result of CEOs who mismanaged their companies. I'd only suggest they be held responsible for those bad decisions.

To quote a very knowledgeable poster here, that is all...

 

[TheBigA]

But the failure of Regent and Citadel, especially as it affects the employees of their Buffalo clusters, is the result of CEOs who mismanaged their companies. I'd only suggest they be held responsible for those bad decisions.

In what way? Whipping post? Tar & feathered? Run out of town on a rail?

That's what John Wayne would do. Jail? For what? High crimes and misdemeanors? Bill Clinton didn't go to jail.

I think they ARE being held responsible. At least in the business sense. They've lost control of their company, and it's being administered, or managed, by a judge. All decisions must be approved by him until they emerge from bankruptcy.
A lot of people are out a lot of money. And the management is working for the bank instead of stockholders. My bet is the bank will be far more careful about their money than the stockholders ever were.

Back in the early days of the industrial revolution, the employer was the surrogate parent. The employees were his responsibility. The quality of his product depended on how he treated his employees. Or they'd show up drunk one day and throw up on the assembly line. That would not be good. Then the unions came along. Then the lawyers came along. Then the government got involved. And everything got complicated. That's where we are now. Everyone wants to blame someone else, and no one wants to be responsible.

But I hear this a lot. People feel they were wronged, and those in charge should be held responsible for their actions. We want justice. But that's not how the game is played anymore. Today, everyone has lawyers, and there is this thing called deniability. Things were so much easier in the 1700s. I challenge you to a duel. THAT was justice.

 

[SirRoxalot]

I think they ARE being held responsible. At least in the business sense. They've lost control of their company, and it's being administered, or managed, by a judge. All decisions must be approved by him until they emerge from bankruptcy.

Yeah, like "the judge" is making all the decisions. Last I knew, orders were coming to local stations from Citadel Corporate, not the bankruptcy court. Day-to-day management is notddddf in the hands of "the judge".

A lot of people are out a lot of money. And the management is working for the bank instead of stockholders. My bet is the bank will be far more careful about their money than the stockholders ever were.

Isn't it the responsibility of management to be careful with the money? Isn't that their JOB? Isn't the board responsible for oversight of the management? In this case, both the board and management have failed to protect the enterprise. On Main street, you f@#% up, you get fired. On Wall Street, you get a big piece of $100-million in stock opetions.

Back in the early days of the industrial revolution, the employer was the surrogate parent. The employees were his responsibility. The quality of his product depended on how he treated his employees. Or they'd show up drunk one day and throw up on the assembly line. That would not be good. Then the unions came along. Then the lawyers came along. Then the government got involved. And everything got complicated. That's where we are now. Everyone wants to blame someone else, and no one wants to be responsible.

But I hear this a lot. People feel they were wronged, and those in charge should be held responsible for their actions. We want justice. But that's not how the game is played anymore. Today, everyone has lawyers, and there is this thing called deniability. Things were so much easier in the 1700s. I challenge you to a duel. THAT was justice.

First of all, unions came along because the robber barons of the 19th century weren't exactly benevolent "surrogate parents". CEOs who earn 300 times what the average worker earns in an industry, while firing the people who produce the product, cheapening the product, and reducing revenue, seem like they should be questioned, not rewarded. The fact that they're responsible for a bankruptcy plan that undervalues the company, rapes the shareholders, and stuffs wads of cash in their pockets certainly seems like something thea the bankruptcy judge should look into. In this case, it's another corporate raider who's peeing in the punch bowl, looking for a quick profit. How apropos.

One of the promises America, and echoed by the "Yes We Can" campaign, was that justice would be extended equally to all, rich or poor. I'm not naive enough to think that whoever can afford the best lawyers has the best chance of winning, but more often than not, right is rewarded.

A duel would be easier, but all it proved was who was the best shot, not who was right.

 

[TheBigA]

Isn't it the responsibility of management to be careful with the money? Isn't that their JOB? Isn't the board responsible for oversight of the management? In this case, both the board and management have failed to protect the enterprise.

First of all, let me say I don't now, nor have I ever worked for Citadel. But I know a lot of people who have, and do. They tell me management has been VERY careful with money, almost to a fault. And they have been VERY careful with money for a long time. If CC "cheap channel," Citadel is cheapest channel. They outsource a lot of stuff, like web services and traffic reporting, to save money. If fact, it could be said that the only real splurge they ever made was buying ABC. Very out of character. And it ended up biting them in the butt. So other than that one thing, they did everything possible to "protect the enterprise." Have you ever made one mistake? OK, maybe not a $2 billion dollar one, but a big one? That's what they did. Prior to this, they were humming along just fine. And even AFTER this, they were fine, until the depression hit.

Regarding the $100 million in stock options: No one has collected that yet. So let's not blame people for things they haven't done yet, OK? They have to emerge from bankruptcy, and then achieve certain benchmarks. If that doesn't happen, they will get fired. If they're as incompetant as you say they are, they won't hit their figures. But let's see what happens first before we give them the money.

First of all, unions came along because the robber barons of the 19th century weren't exactly benevolent "surrogate parents".

It depends on the company. I was raised near a factory where every employee got a company-owned home, and was educated in the company-owned school. So not every company was a robber baron. But the government passes one-size-fits-all laws. So that factory ultimately went out of business, and a lot of employees were out of jobs and out of their house. How was that a good thing? If you enlist in the military, as most of my family has done, you live in government housing, wear government clothing, eat government food, and do what the government says. No union.

I'm not naive enough to think that whoever can afford the best lawyers has the best chance of winning, but more often than not, right is rewarded.

These days, there is no absolute "right." Instead, it's what people BELIEVE is right. I have seen people shop a decision around until they find a judge who will rule their way. So you believe Farid failed to protect the enterprise, and therefore should at least be fired. The bank, who he works for, and now owns most of the company, feels otherwise. The judge agrees with the bank. Sorry. The judge is right. At least for now.

 

[Element9]

In what way? Whipping post? Tar & feathered? Run out of town on a rail?

I was thinking a hefty fine, should it be warranted. But now that you mention it...