Cumulus Media gets the deal to acquire Citadel Broadcasting

Hitting the news in US this week is one of the most prominent M&A activities of Cumulus Media (big radio company) and Citadel Broadcasting which is said to be a “meaningful activity” ever over the last three years by Bishop Cheen (an analyst in Wells Fargo Securities). With the total acquisition cost of roughly US$ 2.4 billion, this agreement could be “the biggest deal in years” (as titled in RadioWorld on 11 March 2011).

After more than 4 months of negotiation, Lew Dickey (Cumulus’s Chairman and CEO) finally had a deal at price of US$37/share which, according to some law firms, is a undervalued offer and unfair for Citadel shareholders. In possibility, easily accepting the offer leads to opinion that whether shareholders are cheated. That is why BODs of Citadel are investigated (by The Law Office of Vincent Wong) for breaches of fiduciary duty and other violations of state law (Business Wire, 2011). On the other hand, let’s take optimistic view, around the time of Cumulus’s announcement (on 23 February) to merge with Citadel, the share price of Citadel fluctuated from US$33.5 to US$34.75 and it has continued to increase from US$33.8 (on 3 March) to US$35.15 (on 11 March). It means that Citadel absolutely gained profits/benefits from the offer of US$37/share. From this point of view, this is really a good and advantageous transaction for Citadel, and Cumulus as well (because it helps to enlarge the size of this giant radio).

Citadel's share price movement on 22 February, 2011 (Source: Bloomberg, 2011)

Citadel's share price movement on 3 March, 2011 (Source: Bloomberg, 2011)

Citadel's share price movement on 11 March, 2011 (Source: Bloomberg, 2011)

After more than 4 months of negotiation, Lew Dickey (Cumulus’s Chairman and CEO) finally had a deal at price of US$37/share which, according to some law firms, is a undervalued offer and unfair for Citadel shareholders. In possibility, easily accepting the offer leads to opinion that whether shareholders are cheated. That is why BODs of Citadel are investigated (by The Law Office of Vincent Wong) for breaches of fiduciary duty and other violations of state law (Business Wire, 2011). On the other hand, let’s take optimistic view, around the time of Cumulus’s announcement (on 23 February) to merge with Citadel, the share price of Citadel fluctuated from US$33.5 to US$34.75 and it has continued to increase from US$33.8 (on 3 March) to US$35.15 (on 11 March). It means that Citadel absolutely gained profits/benefits from the offer of US$37/share. From this point of view, this is really a good and advantageous transaction for Citadel, and Cumulus as well (because it helps to enlarge the size of this giant radio).

As stated by Lew Dickey, the combination between two companies can boost Cumulus’ financial capability and national scope in order to advance the technology and contents. In theory, M&A activities can cause serious problems when it results in monopoly or anti-competitive practices that one firm gain strong market power from M&A activities (Gaughan, 2005). Recalling the case of Yahoo! and Google in 2008, their partnerships agreement covered up to 90% of the internet search advertising market and finally, had to be ended after 4 months. Maybe, this is what many analysts are worrying about in the case of Cumulus and Citadel when they potentially own 572 stations in more or less 120 markets of which 8 are in top 10. The Motley Fool is one of those having uncertain view of this deal, saying that investors should not buy radio stocks as “Radio is dead”, “Cumulus also plans to rearrange the deck chairs on the Titanic” and “terrestrial radio will never be the same” (stated in RadioWorld on 11 March 2011). However, toward the development of technology, the merger is necessary to develop radio broadcasting industry so as to compete against internet, satellite broadcasting and handsets (as Moody’s Investors Service identified in a client note). Despite raising lawsuit notifications, this merger is, up to this point, receiving many backings from two firms’ stockholders and financial institutions leaving the good sign of potential success.