The Brand New Citadel

It is truly fitting that Citadel Media filed for bankruptcy on a Sunday -- yesterday -- when the stock market was closed and people were either obsessed with the blizzard on the east coast or football.

Many of my readers have been writing over the weekend to find out more details on what the future of Citadel Media looks like so I'd like to give you a glimpse of the post-bankruptcy Citadel.

But first, keep in mind that in spite of what you may read in the next few days, this is a done deal.

As one source whose background is radio and the financial world reminds us, "It’s all pre-arranged, so it’s a rubber stamp at this point. It’s the step needed to validate the plans that had already been meticulously put in place".

All the talk about Citadel needing to win over their outstanding creditors is a mere formality. This deal is done -- put a fork in it.

Citadel went into court listing debt of more than $2.4 billion and assets of about $1.4 billion and once the judge approves this behind-the-scenes workaround, Citadel's debt will be reduced to a manageable $762.5 million.

Considering that Citadel's 224 stations still pile up some pretty good free cash flow in spite of the recession, it is a new day for the thieves at Citadel or as I like to put it, the grinches who stole Christmas.

Think of it like this. If you were in debt and filed for bankruptcy, you'd be able to pay less money to service outstanding loans and the rest -- well, you'd get to keep it.

Except in the Citadel deal, it is even better -- at least for the major equity holders.

They get to write down losses.

They steal the company from shareholders winning operational control and giving stockholders nothing -- not even the one penny a share that Citadel stock was worth on Friday.

Better yet, these hijackers get to keep the assets and resell them -- hopefully for a profit -- at realistic prices not the trumped up ones they used to purchase stations originally when consolidation began. And they still get to see another payday.

The Citadel bankruptcy is an example of how equity holders fail their way to success. It's right out of the Lowry Mays Clear Channel playbook.

Screw everybody.

Forstmann Little, the original investment firm that had eyes bigger than its stomach, winds up losing most of its 29% stake in Citadel.

Disney shareholders take it on the chin, don't forget them. After all, they got new Citadel shares as part of the reverse Morris Trust that Disney and Citadel did for ABC Radio. Their holdings are now wiped out.

But the mastermind of all this, Citadel CEO Farid "Fagreed" Suleman is chirping like a canary. The Wall Street Journal is quoting Fagreed as saying, "I feel totally relieved now that it's over and we can move on to the next chapter".

Tell me no!

The next chapter is what I want to warn you about. Suleman is pulling a Clear Channel saying that nothing will change. It's business as usual.

God forbid.

Citadel has only $24 million on hand for operations. New bosses run the show -- Suleman stays (no wonder he is so relieved). Fagreed ran his original employer (Forstmann Little) out of business, the shareholders got squat, the debt holders take control of his company -- Merry Christmas.

So let's take a look at the brand new Citadel.

1. In spite of Fagreed's assertion that everything will remain the same, do I have to tell you that it will be the exact opposite? Everything is going to change. Clear Channel pulled the same stunt when Lee & Bain took over. The press fell for it, but what really happened was yield managers were hired (not the 50 they promised), sales departments were trimmed, national repeater radio replaced local radio even as they dressed it up to sound like all syndication was local radio. Then they started cutting back their ad rates because they couldn't get their prices. More employees were fired and still more will be. Ditto for the brand new Citadel.

2. The new owners, greedy bastards that they are, will run the group like a bankrupt box company. That is, cut, cut, cut. Oh, did you notice the blood letting that was done just a few weeks ago at ABC Radio? That's nothing -- unless of course it was your job that got cut. Don't mistake equity holders for people who have a warm fuzzy feeling about radio as you and I do. They care about write-downs, markdowns and put downs.

3. From now on with debt under control, Citadel will look to repay the money they lost for the equity holders who are now the operating owners and this is going to come by reducing operating costs again and again. (Please re-read this line because this is their mission statement -- understand that and you understand everything).

4. Watch -- recession or not -- the banks that were stiffed on Citadel's loan will make it all back and then some on the sweat of their employees. In fact, I'll bet you they make a profit in the end now that everyone else took the hit. Is there precedent for this? How about the banks that were bailed out by the government. Now many are making a profit and expect to repay bailout loans.
Meanwhile, they will continue to generate more profits, high compensation and bonuses.

5. If you have any nostalgia for ABC radio stations or the ABC Radio Networks, you're going to have your heart broken again. ABC Radio will not be a viable business. It is going to generate cheap programming solutions for the 224 stations. If someone else wants to use ABC programming, the brand new Citadel will be happy to amortize their costs by distributing to these stations. In other words, ABC is dead in the water as an iconic radio network. Mark my words on that.

6. Unfortunately, there is only one way to save money and pay the owner/bosses back. Citadel can't sign 224 stations off-the-air to save electricity. It wouldn't be prudent. Can't sell all its real estate -- the market sucks. Can't raise its rates -- heck, they couldn't get what they deserved for advertising before the recession Citadel can't fire Fagreed Suleman's kitchen cabinet of yeah sayers. No, there's only one way -- fire more people. I wish I was wrong about this, but write down 4,200 employees now and by next year at this time that figure will be a lot less.

In the movie "The King and I" Anna sings a song called "Shall I Tell You What I Think of You?"
It has the perfect lyrics for the brand new Citadel theme song under the continued leadership of Fagreed Suleman:

Toads! Toads! All of your people are toads!
Yes, Your Majesty;

No, Your Majesty.

Tell us how low to go, Your Majesty

That's Suleman's job from now on -- tell us how low to go.

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