Citadel’s Bankruptcy Endgame

If Citadel is so close to bankruptcy, then why is CEO Farid Suleman continuing to fire employees?

Can Farid fire enough people to save the $150 million that is due to lenders in January – or even $5 million, for that matter, in the latest round of cuts?

This time, the master accounting student is putting a sharp pencil to Citadel Media – or as I call it, ABC Radio.

Late last week, Suleman’s new network guru, John Rosso, the Internet guy, learned quickly how to get the hang of things as he marched VP/Affiliate Relations Dave Van Dyke and VP/Digital Media Kevin Miller into his office and told them they no longer have to come to work.

Prior to Rosso’s ascent to power as Jim Robinson’s replacement, some 25 other people were fired from ABC – I mean Citadel Media – with more firings expected. (Notice the new way consolidators are firing these days – slow and steady – maybe no one will notice, right?) No one knows for sure why Dallas-based Robinson got it – he’s good – but perhaps it was because he wouldn’t move to New York to hold court with Suleman.

Before we grapple with the strategy of continuing to fire people if you’re headed into bankruptcy anyway, a little context …

In fairness, ABC had a real bad year – the recession, you ask?

That, too.

Paul Harvey died – he was the best and irreplaceable.

Sean Hannity eventually bolted and between Harvey's death and Hannity's departure Citadel Media lost $30 million in revenue. To paraphrase Steve McCroskey (Lloyd Bridges) in Airplane, “Looks like I picked the wrong week to quit sniffing glue”. This was the wrong year for ABC to lose Hannity and Harvey.

That said, the network is down only 15% -- look how I say only. But still, under the circumstances, a negative 15% is not bad.

Of course, Citadel couldn’t do anything about Paul Harvey’s death at 90, but there are people inside Citadel who think they did not have to lose Sean Hannity who operated out of ABC’s WABC, New York. Farid reportedly got involved and some feel he was the one who screwed up the negotiations.

Nothing apparently sticks to Suleman who earned the nickname “Fagreed” for his $10 million plus compensation years before bad times reined him in.

But now, it may be greed once again that is Suleman’s motive in continuing to end talented people’s careers just ahead of bankruptcy.

Farid will not even be able to make a pimple-sized dent into the $150 million Citadel is having trouble coming up with for its January showdown with lenders.

One option is to do what is called a pre-packaged bankruptcy in which Fagreed gets to save his own bad hide. He’s no dummy and he’s slicker than olive oil on the floor of an Italian restaurant. Can he convince the debt holding banks that he’s the lesser of the evils they want in charge?

I think he can and there is precedent for that.

Would you pick John Slogan Hogan out of a lineup anywhere to run the largest radio group in the world?


Nothing against John as a market manager. You get my point.

But Hogan can say the word “yes” faster than anyone else at Clear Channel so the top job goes to him. You may think I’m kidding, but I’m only half-kidding. Lee and Bain, the investment banks that own Clear Channel now, are dictating the orders. They don’t know how to run radio and don’t want to learn. It’s easier if Hogan learns how to say "yes" to whatever they want to do.

This has got to motivate Suleman who is no less incompetent than Hogan.

By continuing to prune costs – even at the expense of lifelong careers, and yes, even in the worst recession of our lives – Farid Suleman shows the potential banks that will take over his company in return for unpaid debt that he has earned the job.

This sounds like lunacy but that’s how Wall Street works. Is there anything crazier than investment banks thriving when everyone else is hurting because they earn fees like “crazy”? That is, even if the entity they purchased goes under, they can sell off the parts and never look back because the money they made running the company into the ground made them fees on all sorts of things.

It is possible that Citadel could wind up in bankruptcy court and a no nonsense judge could order someone to oversee the company while options are examined. While this usually hurts employees (and their benefits package), it can also result in the company being broken up.

And Suleman being out of work.

With the best multiples available at no higher than four times cash flow right now (for the few deals that are getting done), some or all Citadel properties could wind up on the market in a fire sale of sorts that could allow a lot of radio people to buy back in.

True, they would be buying at the bottom with no guarantee of significant growth ahead, but they could afford the debt – something Citadel, Cumulus, Clear Channel and just about all of the major consolidators could not.

To put it bluntly – Citadel still generates somewhere between $600-800 million in revenue a year.

That’s a lot of free cash flow.

And it all goes toward paying the debt their founders saddled them with yet they are still coming up so short that bankruptcy or trading debt for equity may be the only way out.

The endgame for Citadel – let the lenders take majority ownership of the company and they can keep right on going.

The end game for Fagreed – show the lenders he can carry their water so he can keep right on going just like the Energizer bunny.

For a guy who sat at the side of Mel Karmazin all these years, you’ve got to wonder if he learned anything at all from his master.

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