UPDATE: Cumulus Buys Citadel Broadcasting in $1.7 Billion Deal

by Lance Turner  on Thursday, Mar. 10, 2011 8:43 am  

Cumulus Media Inc. is buying Citadel Broadcasting Corp. in a $1.7 billion deal that would unite two of the nation's largest radio station owners.

Atlanta-based Cumulus would own 572 radio stations across about 120 U.S. markets once the deal announced Thursday closes. It will remain the No. 2 radio station owner in the U.S. behind Clear Channel, which owns more than 800 stations.

Arkansas Ad Rates
In Arkansas, Cumulus owns 11 stations in Fayetteville and Fort Smith, a market ranked No. 128 in the country by Arbitron Inc., which measures radio and television ratings. Citadel owns six stations in Arkansas, all in No. 84-ranked Little Rock, including KARN-FM/AM, 102.9/920; KIPR-FM, 92.3 (Power 92); and KURB-FM, 98.5 (B98.5).

Debra Reid, media director for advertising, marketing and public relations firm Stone Ward of Little Rock, said Thursday that the deal likely won't have an immediate effect on radio advertising rates. But she can see scenarios where rates could rise or fall based on a couple of factors.

Reid said mergers can result in an increase in advertising rates, because the merger decreases competition in a given market.

But in Arkansas, Cumulus and Citadel are not rivals in the same market. Cumulus stations are based to two cities in northwest Arkansas market, while Citadel's stations are all in Little Rock.

In fact, Reid said the deal could eventually result in better rates for advertisers who want to reach both markets. Stations could provide "combo" rates in that case, which are cheaper than buys confined to a single market.

The downside would be that Arkansas is seen by national advertisers has a more efficient statewide buy, which could drive up rates if open ad spots become scarce, she said.

The Deal
The deal represents a bet that the radio advertising market will continue rebounding. Like other media, radio broadcasters were hard hit in 2008 and 2009 as the Great Recession curtailed the ad spending that generates most of their revenue. An advertising shift to the Internet also siphoned money away from radio stations.

But the outlook has been improving modestly as the recovering economy has encouraged advertisers to increase their marketing budgets.

Cumulus said Thursday it is paying $37 per share in cash and stock for Citadel, which owns 225 radio stations in more than 50 markets. Las Vegas-based Citadel had previously rejected a $31 a share offer from Cumulus.

Cumulus said the enterprise value of the deal, including assumed debt, is about $2.4 billion.

The company said it has obtained equity financing commitments for up to $500 million from Crestview Partners and Macquarie Capital. Cumulus also received debt financing commitments of about $3 billion from a group of banks.

The $1.7 billion value is based on Citadel's 46.8 million outstanding shares. Citadel said there is $1.4 billion of cash available for the deal, along with about 151 million Cumulus Class A shares. If all Citadel shareholders choose to receive cash, then each Citadel share would be prorated to $30.00 in cash and 1.613 shares of Cumulus. Citadel said this implies a total value of $38.23 per share, based on Cumulus' closing stock price on Wednesday. If all shareholders decide to get shares instead, then the implied value would be $39.45 on the same basis.

The deal must still be approved by Citadel shareholders and regulators. It is expected to close by the end of this year.

(With The Associated Press)



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