Citadel On Death Row

Citadel CEO Farid "Fagreed" Suleman will become a D-lister on March 6th.

That's when The New York Stock Exchange will delist Citadel and basically relegate it to some type of over-the-counter trading.

This is major.

If you're a Citadel shareholder, my sympathies. What took you so long to realize what has been unfolding for years?

The big question for everyone else is -- what will happen to Citadel now.

Just a little context -- first.

Citadel was warned by the NYSE that it faced delisting after its stock dropped to below the $1 per share threshold last Fall. The NYSE does not condone penny stocks and companies that trade under $1 a share are vulnerable to manipulation.

The NYSE gave Fagreed a chance to submit a plan on how Citadel was going to once again return to a $1 stock. This sounds so surreal, but it's true. Just get the stock back to $1.

Fagreed submitted the plan and the NYSE, once they reviewed it, was apparently underwhelmed. By kicking Citadel to the street, the NYSE was in effect saying that Citadel was a lost cause. Here's how Bloomberg explained it:

The NYSE will make the appropriate filings with the Securities and Exchange Commission pending the completion of its applicable procedures, as the Company has informed the NYSE that it will not challenge this determination. The NYSE noted that it may, at any time, suspend a security if it believes that continued dealings in the security on the NYSE are not advisable.

Not advisable.

So what's ahead for a company that closed at 14 cents a share yesterday?


If Citadel continues to experience a downturn in revenue, it will probably be a goner.

Companies without a lot of debt (such as Saga) can ride out the economic hard times hoping for a revival of the ad market. But not the big consolidators such as Citadel. They are held hostage to the debt they've run up because although Citadel throws off significant cash flow even now, most of it goes to paying off an impossible amount of debt.

You don't have to look too far to see bankruptcy looming in the media business.

Mel Karmazin came this close with Sirius XM until he found John Malone's Liberty Media money.

Denver's Rocky Mountain News is going to stop publishing -- it is worse than bankrupt. It's broke.

Gannett has cut its dividend to shareholders by a whopping 90% -- to redirect that money to paying down debt as it eyes the same uncertain ad market that plagues radio.

Late last year credit markets froze up. That led to some of the current problems radio consolidators discovered where they were not able to refinance their debt. So, just like you, me and everyone else in America, they work hard for their money but most of it goes for paying what they owe.

What used to be low cost debt is now high cost debt and with diminishing cash flow and a gradual move to new media -- you have the perfect storm for economic destruction.

You can't believe radio CEOs when they say this is just a cyclical downturn. It's that, too. But much more which helps one understand the real problem that Citadel and other charge-happy consolidators face.

One thing Citadel may have going for it is that it does not have a lump sum debt payment due until approximately 2012. So it could just hobble along -- cutting expenses, firing people and diminishing its product between now and then.

But, if Citadel profitability declines too far before that time --if profit as a percentage of debt service or revenue falls too low -- they may be in violation of their lender's debt covenants.

This may sound like gobbledygook but it matters.

Creditors (the lending banks and bondholders) can then renegotiate the terms of the debt. This would allow Citadel to live on death row while it waits for a huge turnaround in the ad market which most experts believe is not coming for traditional media.

And here's the catch -- the creditors get to raise the interest rate on the debt that is already choking Citadel.

Nice guys on Wall Street, eh? They always get their money.

But, as Ron Popeil used to say when selling the Showtime Rotisserie on TV -- "but there's more".

The creditors are bluffing.

You see, they don't want to take Citadel stations back and they want to avoid pushing Citadel into bankruptcy because at that point they will only make pennies on their investment dollar.

In the end, it will be Chapter 11, however, if time runs out and the ad market doesn't return as that great motivational sales speaker Fagreed Suleman contends it will.

If the ad market rebounded and they could continue playing the game they got caught playing which is renegotiating debt, then this 14 cent a share business could survive.

Not likely.

Citadel won't come back at the previous growth levels of terrestrial radio going forward.

Meanwhile, Fagreed will continue to be overpaid ($11 million tax free in 2007. More the year before. Think he's going to starve when the 2008 compensation is made public?)

Fagreed bought a couple of more weeks to figure out how to spin Citadel's fourth quarter results and his compensation by getting delisted from the NYSE but then he's got to reveal the numbers.

To borrow another phrase from that TV hawkster (which only seems appropriate here) Ron Popeil, Citadel is just going to "set it and forget it".

There is no "Hail Mary" pass for Fagreed.

Every time Fagreed fails, he fires.

So, I'm predicting more cuts faster than the speed of sound.

I'm hearing veteran ABC Dallas network personalities Jonathan Doll, John Lacey, and several others are being put out to pasture by Citadel.

Overnight and weekend shows on ABC's 24/7 networks will now be voice tracked, joining their Classic Rock, Timeless and True Oldies formats, which are completely pre-recorded. Many of their affiliate stations signed on to have a "live" network show when they can't be live. Tough luck, I guess.

Citadel is cutting many GM’s and doing without as much as possible.

Is it possible to go that low?

Fagreed and the other greedy consolidators remind me of those old movies about death row where the person sentenced to death does everything to stave off execution.

The telephone (you know, the kind you see on Turner Classic Movies that actually makes an old-fashioned ringing sound) is hard wired between the governors office and the warden just in case a stay of execution comes down seconds before midnight.

The "governor" in Citadel's case is actually a group of lenders who have the authority to carry out the cessation of corporate life.

But Fagreed is appealing to The Supreme Court to see if he can win a stay of execution for Citadel.

He'll try anything and everything no matter how dim the prospects -- after all, it's a matter of life and death.

For his last meal Fagreed requests foie gras.

The phone rings and it's his lawyer, RAB CEO Jeff Haley, who breaks the bad news: "no return to pre-recession ad spending is possible for terrestrial radio".

Fagreed walks to the death chamber -- his boardroom -- and announces to the puppet board of directors that the company is seeking Chapter 11 protection.

The lights dim momentarily -- and seconds later return to full brilliance as the switch is pulled and Citadel finds itself in bankruptcy heaven with Circuit City.

Then he boards a private plane to a secret destination to count the money he earned from the financially ailing Citadel during the company's long goodbye and...

is forever banished to hell -- or what I call Wall Street -- where he immediately finds another job with excessive compensation and benefits.

They like his resume.

This scenario may sound a bit far-fetched but it has a better chance of coming true than Citadel becoming a viable consolidated radio company.

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