Citadel and Regent Could Be Buyers

An unintended consequence of the recession is that the companies that performed so poorly that they had to seek bankruptcy protection will live another day to screw up more radio stations.

That's what is a distinct possibility once Citadel clears the bankruptcy court sometime later this year.

Regent has already been given court approval to emerge from bankruptcy as early as this month.

Therefore, shareholders, employees and listeners have been officially screwed and these companies could be among the first to start buying more stations -- as incredible as it may seem.

That may be insane to you, but you and I don't write the rules.

Bankruptcy apparently exists to help radio companies get out of the financial trouble they got themselves into so they can go back to acquiring stations they probably don't have the management ability to run.

Citadel CEO Farid "Fagreed" Suleman already has his new employment contract locked in for when the lenders officially take control of the company.

That wasn't so painful was it?

Shareholders get nothing.

The original stakeholders fronted by Teddy Forstmann -- next to nothing.

The lenders -- well, they get everything including a chance to be acquirers again.

As scary as that sounds imagine Regent buying stations again.

Keep in mind that these two companies are among several that couldn't navigate through the recession that must now be over. I say that cynically because radio stocks are rising and analysts are back to projecting good old fashioned radio as a growth industry.

I sure wouldn't believe an investment bank analyst. Forgive me but they've got a bad track record on seeing the future.

Radio would be a great business if owners didn't have burdensome debt.

How do we know?

Look at Citadel and Regent -- their debt is about to be erased and advertising is picking up. Expenses have been reduced because of repeater radio programming strategies and voice tracking and lots of free cash flow will once again be flowing soon.

And keep in mind how this convoluted system of ours works.

Once debt is removed, the free cash flow allows failed companies like Regent and Citadel to -- all together now -- get themselves into debt again to borrow more money and buy more stations.

Hey, if they get in trouble again, they have their old friend bankruptcy to turn to.

All this is galling to the thousands of radio people who lost their jobs during the recession, but you won't be seeing any of these new acquirers becoming big employers again.

The model is clear.

Buy or die.

Whether you can run the stations or not is not important because equity holders buy things to sell them again at a profit. It's like a giant game of monopoly and you're still looking to just own Baltic and build a few houses on it.

Today's game in radio is shop and sell.

Now for those of you who want to look beyond the happy talk that is being cranked out on this topic, here's the real deal.

1. Radio advertising will pick up but prices will be soft. Radio has no real ability to raise rates. In essence, it will be a long time if ever before stations will get the kind of ad rates they charged when they actually had a number one live and local morning show, for example.

2. Advertisers, especially national ones, are increasingly dictating prices these days -- low prices. Stations are happy to take what they can get.

3. Radio is slobbering all over itself to get a crack at some of the expected corporately sponsored political advertising from the recent Supreme Court ruling. Remember a time when broadcast stations complained about having to take low cost political advertising? Now they are delirious at the thought.

4. No matter how good things get with spot sales, new media spending is going to continue to increase. To keep things in context -- new media advertising rose all through the recession. Advertisers want to buy new media. So the challenge for terrestrial radio is to offer personality and locality -- an irresistible combination that unfortunately has been compromised over the past two years by employee cutbacks in the name of cost savings.

5. Regent and Citadel and even Cumulus (if they ever really fund their new acquisition company) can buy properties on the cheap but every month the economy gets better, an owner would be crazy to sell to these acquirers unless they paid a premium which they most certainly will not pay.

6. Cumulus is not buying Citadel -- sorry, Lew. It sounds great bragging to your employees but for all the reasons I've stated above, why would they sell to you when they are going to acquire stations?

And one more stark reality.

It sucks to be Clear Channel and Cumulus right now.

And very soon it will be great to be Citadel and Regent.


Citadel gave its company to the lenders it could not repay and no real debt will exist therefore they can develop streams of free cash flow.

Regent can soon do the same -- debt free.

Clear Channel, as we reported yesterday, is facing $18 billion worth of debt that has to be repaid in four years (or refinanced at ungodly high rates) and therefore even with all the free cash flow Clear Channel could throw off during an advertising recovery, most of it will have to go to debt payments.

Clear Channel will not be acquiring anything but refinanced debt.

And Cumulus -- well, they have a covenant to face within the next year or so. I don't think the Dickey brothers like to share so I can't see them trading debt for equity in Cumulus. Therefore, playing financial hide and seek is likely their future.

Cumulus can't buy anything meaningful without choking on the debt it already has so get those thoughts of Lincoln Financial stations out of your head.

This, my friends, is the real recovery -- unfiltered and true.

If you want to work in radio or invest in it, pick a company that has plans to be a major presence in new media (not just non-traditional revenue from interactive).

My conclusion is: terrestrial radio is a great entree into new media by running live and local stations and using radio know-how to build separate podcasting, iPad, Internet, music, mobile Internet and social networking platforms.

Two companies.

Separate and apart.

No matter what kind of recovery we see, the radio group without a standalone new media division will not constitute a growth business.