Citadel, the No. 7 radio company, will rocket to No. 3 with the acquisition, which includes the 22-station ABC Radio group and ABC Radio Network. The deal does not include Radio Disney or ESPN Radio.
Technically, Disney and Citadel combined their assets to create a new company called Citadel Communications, of which Disney shareholders own approximately 52%, a structure that makes the deal more tax-friendly.
The deal makes Citadel far more competitive -- especially in larger markets -- with Clear Channel and CBS (formerly Infinity), the No. 1 and No. 2 radio broadcasters, respectively. It also pits Citadel CEO Farid Suleman against his former company. Prior to Citadel, Mr. Suleman was an Infinity executive who grew up in the business with former Infinity head Mel Karmazin, now CEO of Sirius Satellite Radio.
“The long and the short of it is, Farid and Judy Ellis [chief operating officer of Citadel] are going to come in and both work with an eye to the bottom line, a real tight buy to the bottom line,” said Dennis McGuire, VP-regional spot director, Carat USA. “They’ll see how the station, the sales people and the managers are presented and look at rate structure, how they sell their advertising.”
Radio media buyers were generally optimistic that the deal would strengthen both companies financially, although the cost-cutting that Mr. Suleman was known for at Infinity -- helping drive the bottom line -- worried some.
Too much focus on Wall Street?
In general, while radio has fallen out of favor with Wall Street thanks to its slow growth prospects, its terrific margins remain. Some media buyers worry privately that radio cares too much about Wall Street and too little about making a better product for its advertising clients.
Citadel and ABC Radio don’t share markets, eliminating the opportunity to amortize costs on the market level, but the ABC stations give Citadel a presence in larger and more lucrative markets. Citadel’s 200 stations are mostly concentrated in mid-size markets while ABC boasts a significant presence in several large markets, including New York, San Francisco, Dallas and Atlanta. Citadel’s largest current market is Providence, R.I., which ranks 36th on Arbitron’s list.
“On one hand, the more entities we have to buy from the better it generally is for the client,” said Natalie Swed Stone, U.S. director of national radio at OMD. “But our concern is to have the best product for our client and there are always additional suppliers. Now with online and satellite, terrestrial isn’t the only game in town anywhere.”
Good move for ABC
Being in Citadel’s mix could strengthen ABC’s network business as well, helping its shows snare greater distribution -- a key driver to network success. The top two radio networks, Clear Channel-owned Premiere and CBS-backed Westwood One, both have major radio groups behind them.
Bob Iger, Disney’s CEO, has been a vocal proponent of new media since taking the reigns at the company. Just weeks before Disney acquired Pixar, the Steve Jobs-backed digital animation studio.
“What’s interesting is the contrast between what Disney did yesterday, using valuable Super Bowl inventory to promote Mobile ESPN, and today, getting out of the traditional media business,” said Mark Fratrik, VP of BIA Financial Network. “In a sense they said this is where we think communication and media is going and we’re investing in it.”
News of the deal came just after the closing bell. After-hours trading saw Citadel up 4 cents to $12.04 and Disney up 49 cents to $25.45.