Citadel Broadcasting

Citadel Broadcasting  (Website) is the third largest radio station operator in the United States, measured by number of full power AM and FM station licenses.  Citadel operates about 62 AM radio stations and 165 FM stations in the United States, far exceeding the national FCC ownership caps  repealed in 1996.  Citadel is headquartered in Las Vegas, Nevada and had 4,500 employees at one point.

History

The ABC portion of the Citadel history goes back to the beginnings of radio.  NBC was a part of the Radio Monopoly agreed to in 1927 to settle a series of patent disputes.  RCA  formed two radio networks, the NBC Red and NBC Blue networks.  In 1943, FDR used anti-trust laws to force NBC to sell one of its radio networks.   They chose to sell the Blue Network to Edward Noble (the man who owned the Life Saver candy company), who just so happened to have been FDR’s Undersecretary of Commerce and owner of WMCA in New York.  The  former NBC Blue Network becomes the ABC Radio Network and after Mr. Nobel agrees to change NBC’s policy of not selling air time to Labor Unions and buys the network for $8 million.

Citadel Radio was founded by a man named Larry Wilson. After accumulating a group of 205 small market radio stations during the post-1996 industry consolidation, in 2001, Citadel was taken over for $2 billion by a hedge fund named Forstmann Little [Announcement] and Mr Wilson retired. (He owned about 6% of the company at the time it was sold)[Profile] [In May of 2009, Mr Wilson agreed to buy KXL and KXTG in Portland from Microsoft’s Paul Allen – some see Mr Wilson as possibly coming out of retirement to help pick up the pieces of the failing radio industry]

Forstmann Little was a very active Private Equity firm at the time, involved in a number of the Leveraged Buyouts (LBO) in the telecom and Internet company that fell apart after the Stock Market bubble burst in 2000. [Wikipedia]   Ted Forstmann did a VERY insightful interview with Charlie Rose in October 2008 about the reasons behind the economic collapse.  [Interview] After Mr Wilson was bought out, the CEO of Citadel was a man named Farid Suleman.

Most press accounts describe Mr Suleman as a “bean counter” – the kind of guy who thinks you make a company profitable by cutting the expenses, even though the business has very high gross profit ratios. He was hired away in 2002 from Infinity Broadcasting (now CBS Radio) where he had been the CFO and briefly the CEO. [Radio Ink Interview in 2004]  He had worked for Mel Karmazin, who later would create Sirius Satellite Radio, and now runs the combined Sirius XM. The Radio Ink interview makes it very clear what happened next.

Mr Suleman, a native of Tanzania in Africa, went to each of the small market stations in Middle America he now ran.  He had never been to those places and never heard of any of the radio stations his company owned.  He discovered the stations lacked the “corporate culture” of Infinity (translation: New York), and had “way too much staff”, which he immediately started to axe and so he could impose his Infinity Radio “culture”.   He encouraged people to leave the company.  Every person who left improved his “cash flow”.

In major markets (like those where Infinity has its stations), you live and die by the ratings book and keeping national advertisers happy.  In the smaller markets Citadel operated in, you survive by building long term relationships within the local community and doing business on a handshake.  You deliver directly measurable results (people walking in the door and buying stuff), and only vaguely rely on the ratings books to make sure you aren’t scaring away your audience.    The station manager went to high school with the car dealer and the mayor and they all play golf together with the doctors on Wednesday.

They are two very different types of business. When Disney Corporation let it be known in 2005 that they wanted to unload the radio assets they acquired from their purchase of ABC in 1996, Citadel entered the bidding and became the “Winner” in 2006.

Mr Suleman had played a role in 1986 when tiny Capitol Cities Communications was able to take over ABC. [Details here].   Cap Cities /ABC owned TV stations in addition to the ABC Radio Network.

The largest market station Citadel owned prior to merging with ABC was in Salt Lake City, the country’s #31 market.  ABC’s 24 stations were larger in revenue than all 224 of Citadel’s own stations combined.   ABC was the kind of company that Mr. Suleman wanted to run – big city stations with power and influence and easy cash flow.

Citadel acquired 24 Major radio stations (mostly AM) with very strong histories and brand recognition (WABC, WPLJ, WLS, WMAL, KGO, KSFO, WJR and others).  Disney retained ESPN and their ESPN stations, and their own group of radio stations targeted at young people. Citadel also acquired ABC Radio Network, which produces hourly newscasts, Paul Harvey’s morning reports (before his death), Tom Joyner and a variety of satellite delivered music channels.

At the time, ABC Radio was the syndicator of the Sean Hannity show (many people believed in error that Hannity was syndicated by Clear Channel’s Premiere, since he was on so many Premiere stations following Rush Limbaugh). The deal was valued at the time at about $2.7 Billion.  Citadel would load up on about $1.35 of debt (in addition the $700 million they were already carrying), and after the sale was completed, Disney’s stockholders would get (and could sell) their 54% stake of the combined Citadel/ABC company to the public.

To pull off the acquisition and get their 46% of the combined company, modest Citadel had to borrow the $1.35 Billion and give that money to Disney at the closing.   A complete description of the transaction at the time can be found [here] and [here].

Things have not worked out very well for Citadel under Mr.  Suleman’s leadership.  They loaded up on debt just as the Clear Channel deal was announced and started unraveling.    Part of the terms of the Citadel/ABC merger were that at the end of two years, Sean Hannity had an option to “opt out” of his existing contract with ABC.  He opted.   Hannity negotiated a deal to be syndicated by Clear Channel – Citadel will continue to syndicate his show on Citadel’s own former ABC stations, but Clear Channel would take over the national syndication through a complicated revenue sharing agreement with Citadel.

Paul Harvey’s wife died in 2008 and Paul Harvey left the air.  As often happens with a couple deeply in love, Paul fairly quickly followed her to heaven

in 2009. Phil Boyce, the program director of WABC in New York quit in October 2008  and went to work for Talk Radio Network, a direct competitor of ABC Radio.   Phil played important roles in the syndication of Sean Hannity and others and is widely respected in the Radio Business as a smart guy.   His exit was an important signal about the future of Citadel (or lack of).

Like the other big radio operators, Citadel was hit very hard by the “Mark to Market” rules.  They had to write off “paper losses” of  $1.6 Billion in 2007 and $1.2 billion in 2008.  Perhaps this outcome is what happens when hedge funds try to run a business they don’t understand.

In 2009, Citadel decided to throw away the “ABC Radio” brand in favor of their own meaningless “Citadel Media” brand.   Their stock was delisted by the NYSE in March 2009, and traded on its final day down to $.01 a share and moved to the “pink sheets”.    The stock has rebounded up to $.13 a share, but prices on the OTCBB are more related to day trading psychology than the value of the stock.

Citadel is trying to negotiate a deal with its lenders to avoid the banks taking them over completely. [Story] Citadel defaulted on the original terms of their credit facility, which is now up to $2 billion  – now payable in full as a current liability.   Well, not 100% defaulted – the banks keep drawing the finishing line at “just one more month”, but Citadel’s own May 8th filing says they have capitulated and do not expect to survive.

Citadel announced on May 8, 2009 that they will not be announcing earnings quarterly for the remainder of 2009.  They are still filing required reports with the SEC  – just not talking to stock analysts.  That’s a pretty clear signal that management is occupied with “something else” more important and telegraphs what could be about to happen next. A recent “leak” that was quickly pulled back was that a new entity called “WABC radio network” could be in the works.

It seems probable that someone taking over Citadel might want to quickly divide it into three pieces – the small market Citadel, the former ABC stations (the part Mr. Suleman really wants to run)  and the syndicated programming business run formerly known as ABC Radio Network  (Clear Channel or Talk Radio Network being obvious potential buyers – maybe Westwood One).

Citadel filed a prepackaaged bankruptcy in Sunday December 20th, 2009.

Major Stations – top 25 markets

All of Citadel’s Major Market stations are the former ABC Radio stations. New York:

  • WABC-AM (News/Talk) [50 kw]
  • WPLJ-FM (Music)

Los Angeles

  • KABC (News/Talk) [5 kw]
  • KLOS (Classic Rock)

Chicago:

  • WLS-AM (News/Talk)  [50 kw]
  • WLS-FM (Oldies)

San Francisco

  • KGO-AM (News/Talk)   [50 kw]
  • KSFO-AM (News/Talk)  [5 kw]

Fort Worth

  • WBAP-AM (News/Talk)  [50 kw]
  • KSCS-FM (Country)
  • KPMZ-FM (Adult Contemporary Music)

Washington, DC

  • WMAL-AM (News Talk) [10 kw]
  • WJZW-FM (oldies)
  • WRQX-FM (Adult Contemporary)

Detroit:

  • WJR-AM (News/Talk) [50 kw]
  • WDRQ-FM (Adult Contemporary)
  • WDVD-FM (Adult Contemporary)

Atlanta

  • WKHX-FM (Country)
  • WYAY-FM (Oldies)

Boston, MA

  • WXLO-FM (Adult Contemporary)

Minneapolis / St Paul

  • KQRS-FM (Classic Rock)
  • KXXR-FM (Rock)
  • WGVX-FM (Classic Rock)

Ownership

Since the stock continues to trade on the OTCBB, financial information is still filed with SEC. There are 298 million shares of common stock outstanding as of March 31, 2009.  At $0.13 a share, that makes the entire company “worth” about $38 million.

Management

Check back in 30 days.

Institutional Owners:

Seems improbable.

Financial Condition as of March 31, 2009 (10-Q)

Key Balance Sheet Items: (end of 2008) Total Assets:  $2,397 Million   ($2.4 Billion)

  • Value of Radio Station licenses:   $1,370 Million (after being written down by $2.8 Billion)
  • Goodwill and other intangible Assets:  $585 Million
  • Cash:  $25 Million
  • Accounts Receivable: $129 Million  (73 days of gross revenue)
  • Land, Buildings, Equipment (net) $48.6 Million

Debt:

  • Current Liabilities:  $71.8 million
  • Long Term Debt:  $2,059 Million [now classified as short term due to default]

Stockholder Equity:  –$298 Million

Profitability

2008 2007 2006 2005 2004
Radio Revenue ($million) 863 719 432 419 411
License Impairment 1,208 1,612 174
Operating Income (Without Impairment) 184 197 139 143 41
Long Term Debt 2,162 2,532 751 675 655
Debt Service Cost 211 100 33 21 17

Only in your dreams.

The spike in the interest cost is due to their attempt to hedge the LIBOR credit facility with an interest rate swap transaction – and the increase in the interest rate due to the deterioration of the company’s performance.  The interest expense is now just being added to the loan balance rather than being paid.

Stock Performance

Citadel “Went Public” in August 1st 2003 at $20.65 a share.   The stock went up briefly to $21.71 on August 18th, 2003 and began its one way trip to the basement.  As of May 11, 2009, the stock closed on the OTCBB at $0.13 a share.     If you bought the stock at the peak, you lost 99.4% of your investment.

*** Update – September 16, 2011 ***

Citadel Media has been acquired by Cumulus Broadcasting

Leave a Reply