The Radio Equalizer: Brian Maloney

05 December 2007

New Imus Employer - ABC Radio Owner Faces Financial Ruin


Will New Imus Employer / ABC Radio Owner Survive?

Missing from nearly all of the fawning coverage over the return of Don Imus, it's the elephant in the room: will his new employer (and now owner of major ABC Radio talk stations across the country) survive long enough to see him through even a portion of his new, five- year megadeal?

While mainstream media suck-ups lavish Citadel Communications and its embattled CEO Farid Suleman with praise for reviving the I-Man's career, they've repeatedly failed to mention the severe financial crisis turning the company's future into a giant question mark.

Wall Street certainly isn't under the same spell that has clouded the judgment of our MSM friends: it has beaten CDL shares to a pulp, with near- daily drops that have each taken tens of millions of dollars in market capitalization off the table.

In fact, the money people noticed Citadel's dubious future long ago, with a slow- but- steady sell- off taking CDL from about $22 five years to barely $2 today. Now considered a risky penny stock, shares touched an all- time- low of $1.97 earlier today. It has underperformed all of its competitors in the miserable radio industry.

In addition, Street analysts and investors have been less than impressed by CEO Farid Suleman's move to shower Imus with money. Since his mega- deal was announced, Citadel shares have fallen more than 50%.

An even bigger factor in the sell- off, however, is the ominous and quite unexpected third quarter loss the firm recently reported. From Reuters on 9 November 2007:

BANGALORE, Nov 9 (Reuters) - Radio broadcaster Citadel Broadcasting Corp (CDL.N: Quote, Profile , Research) reported a huge quarterly loss, as asset impairment and disposal charges more than outpaced revenue growth, sending its shares to an all-time low.

The company reported a third-quarter loss of $447.8 million, or $1.71 a share, compared with a net income of $18.4 million, or 16 cents a share, in the year-ago period.

Net revenue, however, more than doubled to $240.2 million from the year-ago period.

Asset impairment and disposal charges of about $463.2 million, or $1.77 a share, took a big bite out of its results for the latest quarter.

Analysts on average were expecting the company to earn 8 cents a share, excluding items, on revenue of $243.4 million, according to Reuters Estimates.

"The quarter was disappointing and this was not expected," Benchmark Co analyst Edward Atorino said by phone.

ABC Radio, which Citadel bought from the Walt Disney Co (DIS.N: Quote, Profile , Research) in the second quarter of 2007, did not perform up to the expectations, he said.

That big revenue jump, by the way, resulted from adding ABC's stations to Citadel's roster, it does not reflect natural growth in already- existing (pre- deal) outlets. Here's the company's Q3 10-Q filing.

Meanwhile, Citadel - ABC Radio employees sure haven't missed the story, instead bracing for what are expected to be massive layoffs in the coming months. It's not a question of if, but when, a major housecleaning will occur. Managers, hosts, producers and other staffers are nervously awaiting what may come just after the holidays, according to insiders who have contacted your Radio Equalizer privately.

While some feel protected for now by their talent contracts, it isn't clear whether those would be invalidated in any potential bankruptcy filing.

Beyond the firm's staffers, watching CDL shares take their daily bath has become almost an obsession in some industry circles, with emails traded and comments posted regarding the latest drops.

So what has gone wrong? The easy answer is that Citadel, formerly an operator of stations in small markets, bit off more than it could chew to acquire ABC Radio. It was a complex deal with Disney that took two years to finalize. But in reality, this money- losing company was troubled long before that point.

Worse, Suleman mistakenly followed the lead of other radio CEOs who have attempted to micromanage the content of their radio stations without the skills to pull it off. A handful of egomaniacs are currently holding our entire industry hostage, destroying countless careers and formerly successful outlets through sheer programming incompetence.

As a result, radio's future has never looked shakier, with owners attempting to sell large blocs of stations into an already flooded market. And with ad revenue increasingly migrating toward the Internet, broadcasting would face tough enough challenges even if it weren't bent on committing suicide.

From here, there are big questions: will the company, long backed by its association with LBO firm Forstmann, Little & Co, be able to avoid bankruptcy? Is the I-Man's contract worth the paper on which it is printed? Will some of America's most successful talk radio stations and hosts be taken to the woodshed along with the rest of Citadel?

Just imagine the plight of Citadel insiders who believed their now largely worthless share options would fund a decent retirement. Will they receive a second blow through the loss of their positions?

And why isn't the mainstream media calling attention to the firm's troubles in their fawning coverage of Imus's return? Is this a journalistic thank- you for bringing back their idol? Or are they too ignorant to notice the elephant in the room?

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  • mmnmm Brian, I know people who worked at WABC, the house cleaning took place already. The production people are all NEW people Citadel hired, and many others have been replaced from ABC's staff, the day Citadel was offcially in charge. Thereis not much more to "clean", they replaed everyone already....

    By Blogger Minister of Propaganda, at 06 December, 2007 10:04  

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