Cumulus Media Inc., the U.S. radio station owner, offered to buy larger rival Citadel Broadcasting Corp. in a deal worth $2.4 billion to expand its coverage and cut costs, ending months of negotiations.
Citadel shareholders can choose $37 in cash or 8.525 Cumulus Class A shares for each stock they own. The cash offer is 7.7 percent more than Citadel’s closing price Wednesday. Cumulus said Thursday in a statement the acquisition gives Citadel an enterprise value of about $2.4 billion.
Cumulus, with a market capitalization of $214.4 million as of Wednesday, said the deal would reduce corporate expenses and bring the number of radio stations it owns to 572 across 120 U.S. markets. Citadel filed for bankruptcy in 2009, hurt by the recession and competition from satellite and Internet rivals. It exited creditor protection in June.
“In some of the old media, consolidation is the only way they’re going to preserve the economics of the business model for a while,” Craig Moffett, an analyst at Sanford C. Bernstein & Co. in New York, said Thursday in a radio interview on “Bloomberg Surveillance” with Tom Keene.
Citadel, based in Las Vegas, said last month it entered into exclusive talks with Cumulus after the suitor raised its bid by about 19 percent. In December, Atlanta-based Cumulus said it bid $31 a share, or $2.1 billion, including as much as $1 billion in cash. Citadel rejected that offer.
Citadel’s Class B shares declined 13 cents to $34.37 in over-the-counter trading Wednesday. Cumulus added 4 cents to $5.10 on the Nasdaq Stock Market.
Cumulus is making an acquisition 10 times bigger than its own market value, a ratio that contributed to Citadel board initially rejecting the offer. Cumulus has commitments for as much as $500 million in financing from Crestview Partners LP and Macquarie Group Ltd., and up to $3.03 billion in debt financing.
Crestview, a New York-based private-equity firm, created a strategic partnership with Cumulus in April to invest in radio- broadcasting companies.
“There’s been a lack of deals for a number of years, and I think of lot of that had to do with the economic climate and the weakness of the ad market,” said Leah Pilla, an analyst at Knight Libertas LLC in Greenwich, Connecticut, who covers radio companies. “Now that the ad market has started to recover, and the credit market has opened to certain transactions, you’re starting to see that happen.”
The deal may help the combined companies compete with CC Media Holdings Inc., the largest radio broadcaster in the U.S. with more than 800 stations, and CBS Corp., the No. 2. The combined Cumulus-Citadel will rank No. 3, Pilla said.
“For Cumulus in particular it’s a great deal because it adds a lot of large-market stations to the portfolio, which are growing faster than some of the smaller and medium-sized markets,” Pilla said. “There is a lot more competition now for local advertising from Internet radio and a lot of other places, but listenership of radio is still there.”
Citadel sought Chapter 11 protection in December 2009, saying the recession had “put a chokehold on advertising spending,” its main source of revenue. It exited bankruptcy under the control of its biggest creditors, private-equity firm TPG Capital, JPMorgan Chase & Co. and hedge fund R2 Investments.
The average premium paid for a radio company in the past five years was 80 percent, according to Bloomberg data. The biggest deal was XM Satellite Radio Holdings Inc.’s purchase of Sirius XM Radio Inc. for more than $3 billion, according to the data.
Cumulus was advised by UBS AG. JPMorgan Chase & Co. and Lazard Ltd. advised Citadel on the deal.