Citadel Closer to Bankruptcy

There are times when I can't tell which radio consolidator will go bankrupt first.

Clear Channel or Citadel.

Just recently Clear Channel's lenders were talking tough about letting the company go into Chapter 11. If that happened, the creditors would be making only pennies on the dollar.

Unfortunately, that may be their best deal. Pennies are better than nothing.

Now Citadel, the Fagreed Suleman radio group has dropped one shoe on the ground -- and you know what they say about the other one.

Now Citadel is covering its butt just in case they have bankruptcy on their mind.

After all, Citadel retained Lazard Freres to help it through a likely bankruptcy filing.

Hiring a firm like Lazard Freres under these circumstances is like calling hospice when there is nothing else you can do for the dying patient.

Or, calling the undertaker three days before you know what.

Or vultures hovering over a dead body.

Oh well, you get my point.

Citadel just warned its employees that effective July 6th, they will not be permitted to purchase Citadel stock in their 401(k) Plans.

Are these guys nuts?

If they wanted to do their employees a favor, they should have told them to sell when the company's stock was worth ten dollars not now when it is worth only a few cents.

But that's not what this is all about.

It's another indicator that Citadel is on its way to Chapter 11.

As a broadcast industry analyst told me:

"This is a formal notice directed to Citadel employees with 401k retirement plans. The retirement plan administrators have chosen to cut off Citadel employees from putting their 401k money into Citadel common stock. Any funds currently being contributed to purchase Citadel stock will be automatically re-directed to a less risky alternative investment".

Of course, Citadel employees are not as dumb as their employers apparently think they are.

They're certainly not rushing out to buy low and, well -- you know, sell high (like at eight cents!).

Who in their right mind is still purchasing Citadel common stock, given its precipitous decline and the state of the company’s balance sheet?

What it really means is that Lazard Freres (which will get their fees no matter what you can be damn sure) has probably calculated that Citadel's common stock will be wiped out completely in an upcoming restructuring.

That is, it’s all going to go to the creditors. And this ban on purchasing the company's four cent stock is an admission that it's all a lost cause.

It's tantamount to a legal notice to employees to insulate the company from the lawsuits that are likely to be generated. This way 401k participants can’t say they weren’t reminded that they have the option to bail on their current shares while they can still get something for them.

That's right – even if it is just pennies on the dollar.

Here's the disclaimer:

"If you already hold shares of Citadel Broadcasting common stock within your 401(k)
account, you will not be required to sell these shares at this time. However, you will
continue to have the right, as you always have, to sell any or all of your Citadel
Broadcasting common stock shares within your 401(k) account at any time of your
choosing (subject to market trading hours)".

So there you have it.

Citadel's bankruptcy specialists are issuing the necessary warnings for what is about to happen

Citadel, along with the other groups never had a "what if" plan should the economy ever tank.

They never considered that radio might someday be passe and that 80 million new listeners would be necessary to constitute a growth industry.

They and other radio groups have financed, refinanced and refinanced again their debt until the point of no return -- and that is now.

I have said many times that should Clear Channel go down for the count first, you can bet that the entire industry is done. And Clear Channel is teetering on the brink of bankruptcy.

Each month the sales figures get iffier.

There's almost no one else left to fire to realize more cost-cutting.

The industry has been pillaged by consolidators who are facing the consequences for building companies they have proven they cannot operate and on which they certainly cannot pay the debt service.

Economists do not see the bottom of the recession.

Consolidators do not see the ascent of the Internet, podcasting, smart phones, streaming and the implications of social networking vis-a-vis generational media.

There is a reason you don't call the plumber to do a funeral.

Plumbers fix things.

You call funeral directors (so to speak) like Lazard Freres to prepare for the likely event that you must protect yourself from your creditors.

That time is getting closer.

Radio stations will be returned to their proper owners very soon.

But consolidators will be doing them no favors even if these good hearted purchasers will be able to buy them cheaply from a bankruptcy court.

A bigger tragedy than the demise of Clear Channel, Cumulus, Citadel and a few bottom feeders is that good money will be thrown after bad in a time of great change in the broadcasting business.

The real tragedy is that operating radio stations -- even if they are purchased at reasonable multiples -- will be like operating a steam engine railroad in the space age.

One tragedy -- the unnecessary demise of the radio industry -- has already happened.

The next tragedy -- the repurchase of these outlets from failing radio groups -- will be one more way arrogant consolidators will spit in the face of talented people who want one more bite at the apple.

I am not against investors buying radio stations from bankrupt consolidators for pennies on the dollar as long as they know that what they are buying is not in and of itself a growth business.

Without a digital media blueprint and 40% of their operating budget spent to grow it, radio in its final iteration will wind up spending down or bankrupting the retirement nest eggs of the outstanding radio executives who so badly want to save this industry.

Meanwhile, Fagreed Suleman will be working somewhere else.

Citadel principal Teddy Forstmann will be doing a financial play with something else.

Lenders will be making their considerable fees for funding their next fantasy.

The other day I heard GE CEO Jeff Immelt on Charlie Rose and he said we're going to have to start building things in this country again. Can't outsource everything for cheap labor. Can't make it as a financial economy or "service" economy alone.

Isn't that also true of the traditional and new media business?

It's time to build things.

Not just finance schemes that earn lenders their fees and risk shareholder investments as part of the fool's game.

Unfortunately, building radio from the rubble of bankruptcy is a slippery slope and may be the unintended legacy of radio consolidation in the end.

On the upside, consolidators have fired a lot of talent.

Now, it's time to redeploy and reemploy these folks in the new media economy that is sure to rise up and be the growth industry that will fuel the next generation and perhaps generations to come.

Knowing the difference is everything.

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