Well Connected
Citadel Broadcasting Corp.

The original version of the Citadel radio group, Citadel Communications, was formed in 1984 by longtime broadcasters Fritz Beesemyer and Larry Wilson, who started with an AM-FM combo in Tucson, Ariz. Wilson continued with Citadel as its president until 2001, when the group was acquired by the New York leveraged buyout firm Forstmann, Little & Co.

The new Citadel, known now as Citadel Broadcasting, is run by Farid Suleman, a 54-year-old, third-generation Tanzanian with decades of experience in the radio industry. Suleman can be described succinctly, but not completely, as Mel Karmazin's former right-hand man. Karmazin is now the chief executive officer of Sirius Satellite Radio. He's also the man who made Howard Stern a radio superstar when he was in charge of Infinity Broadcasting, and then CBS Radio, after it was bought by Viacom. Karmazin and Suleman started collaborating in the mid-1980s when Suleman joined Karmazin's Infinity Broadcasting as chief financial officer.

In February 2006, Citadel and Walt Disney Co. announced a complex deal under which Citadel would acquire Disney's ABC Radio subsidiary. On completion, it will have Suleman running the radio industry's third-largest group — surpassed only by Clear Channel and CBS Radio — with revenue topping $800 million.

Suleman's relationship with ABC dates to his earliest years in the broadcast industry. In 1986, when Suleman made the move to Infinity, he had just finished working as a financial consultant, advising old-line broadcaster Capital Cities on its $3.5 billion acquisition of ABC. Now, 20 years later, Suleman is cast as the winning bidder to acquire a 22-station radio portfolio from ABC, along with the ABC Radio Networks, for an estimated $2.7 billion.

The ABC acquisition will virtually double Citadel's annual revenue and give the group significant presence in radio's largest markets. Politically, that could put Citadel in the camp favoring further relaxation of the radio ownership rules — especially for such possible deregulatory moves as allowing ownership of more than eight stations in large markets, with no more than five AM or five FM stations.

The Federal Communications Commission reopened the debate on ownership deregulation with its June 2006 notice on proposed rule changes. Among the issues the FCC said it wanted to consider was creating additional tiers of radio markets that would allow for new caps on station ownership. The current caps limit a single owner to no more than eight stations in the largest of markets.

The merged CapCities/ABC was swallowed up by Walt Disney Co. in 1995, in a $19.6 billion acquisition. At that time, the value of the 21 radio stations ABC owned was put at just more than $900 million.

The station portfolio Citadel is buying now from Disney is a different set of facilities: only 24 stations of ABC's 70-plus station roster are being sold. But they are the 24 top-billing stations in the country's top-rated markets, and their advertising revue comprises most of the total generated by the Disney radio division.

Citadel is also picking up all of the ABC Radio Networks, other than ABC News and ABC News Radio.

The $2.7 billion deal was not locked into its final structure as of October 2006. It involves a complex process by which Disney shareholders will receive shares in the newly merged company that will represent approximately 52 percent ownership of Citadel Broadcasting. As part of the deal, Citadel is to pay Disney $1.3 billion to $1.65 billion, based on the value of Citadel's stock price at the closing date. Since the deal was announced in February, Citadel's shares have lost nearly 25 percent in value, from $11.53 in early February to $8.94 at the end of August.

That falloff will trigger a larger payment to Disney, unless Citadel, and Suleman, can make the case that the ABC stations have suffered in the interim, too. Suleman appears to be attempting to do just that. "The performance of the ABC stations is not where it was expected to be," Suleman told The Wall Street Journal in mid-August. "Some of the financing commitments have to be redone."

Assuming that the multibillion-dollar deal finally closes, Suleman has said he expects to sell off about $150 million worth of stations from what will be his roster of nearly 250 stations serving 46 markets.

But financing isn't the only hurdle Citadel must clear to finalize the merger. The company is one of the subjects of an ongoing investigation by New York State Attorney General Eliot Spitzer into alleged "payola" — the practice of trading cash and gifts for radio airplay.

In March 2006, Spitzer's office filed suit against Entercom in state court in Manhattan, alleging that the radio group had "traded air time for gifts and other payments" and "sold air time to record labels in order to manipulate the music charts." Entercom has denied the charges; a decision on the company's motion to dismiss the suit was still pending in early October.
In addition to Citadel, CBS Radio and Clear Channel also are under investigation, but no other suits have been filed.
Following Spitzer's lead, the Federal Communications Commission has launched formal payola investigations targeting the four companies. The last payola-related FCC probe was in 2000, when two Clear Channel stations each were fined $4,000.

Citadel also must contend with the complaints lodged against it with the FCC by Red Wolf Broadcasting, owner of a pair of Connecticut radio stations. In January 2005, the broadcaster accused Citadel of lying in an application for an FM facility license that Red Wolf wanted to use in a market where it competes with Citadel. Eight months later, Red Wolf also accused Citadel of violating the FCC's payola rules — based, in part, on a February 2005 subpoena delivered to Citadel by Spitzer's office.

Citadel wrote in its August 2006 quarterly earnings report, its latest, that "[t]o date, no action has been taken" in the Spitzer investigation. The group owner also noted that it had received a letter of inquiry and a request for information, on April 19, 2006, from the FCC for its investigation into alleged payola practices.

Citadel wrote that it is "currently in the process of gathering the information and documents requested by the FCC" and that it could not predict "the outcome of this increased activity."

— Tony Sanders

October 2006

Source: Billboard Radio Monitor, Duncan's Radio Group Directory (1991, 1995 editions), Los Angeles Times, New York State Attorney General's Office Web site, Securities and Exchange Commission filings

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