Citadel deal value slipping with Cumulus stock price


RBR-TVBR analysis
We’ve just passed the Fourth of July, so the expected Labor Day closing for Cumulus Media’s acquisition of Citadel Broadcasting is still some time away. Based on the formula spelled out in the contract for the cash and stock deal, the total value has been slipping lately – along with radio stocks in general.

A few months ago we showed how Citadel CEO Farid Suleman was correct in saying at the time of the deal announcement that the value ascribed to his company was $2.5 billion, while Cumulus CEO Lew Dickey pegged it at $2.4 billion, based on the value when the exclusive negotiations were publicly disclosed. That’s all because of the fluctuating market value of Cumulus Media’s stock.

The magic number is $4.34. When Cumulus Media’s stock price is above that mark you can expect the current shareholders of Citadel to take the minimum cash, $23.00 and maximum Cumulus shares, 3.226, per Citadel share.

But lately – since May 20th – Cumulus has closed each trading session below $4.34. On Friday, July 1st it closed at $3.59. If the stock is still below $4.34 when the Citadel shareholders make their payout election, the total value of the deal will be less than originally announced. Also, it’s pretty safe to assume that each and every one of the Citadel shareholders will make the same election, since virtually all of the shares post-Chapter 11 are held by sophisticated investment funds.

So, what’s the total value at the July 1st closing price of $3.59?

In that case the Citadel shareholders would elect the maximum cash, $30.00, and minimum amount of Cumulus shares, 1.613. Multiply each by 47 million Citadel shares outstanding and you get $1.41 billion in cash and 75.811 million Cumulus shares, worth $272.16 million. Add in $700 million of net debt from Citadel to be refinanced by Cumulus and the total value of Citadel comes in at $2.38 billion.

What will the actual value be at closing? We should know in about two months.