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Cumulus Doubles in Size With One Stroke of the Pen

The Art of a Big Radio Deal:
Cumulus Doubles in Size With One Stroke of the Pen

by Ed Ryan

OK, maybe it wasn't as simple as one stroke of the pen -- Citadel shareholders surely didn't feel that way a few months ago. And, for sure, bringing together two big companies like this is complicated on many levels.

The company created by Cumulus' purchase of Citadel will be another behemoth in the radio industry.
When the two combine at the end of 2011 -- assuming the merger is approved by the FCC -- 4,000 more employees will receive Cumulus paychecks. Cumulus will go from owning 347 radio stations to owning 572 and will have a footprint in 120 markets, nearly doubling from 67. And all of it will be led, of course, by Cumulus Chairman/CEO Lew Dickey.

When a merger like this takes place, top-tier management always says it'll bring about more synergy, cost savings, and the like. On the lower rungs of the ladder, employees wonder if they will be replaced by someone who does their job faster or better or cheaper. It's normal. It's natural. It's business. Dickey says the estimated synergies are "at least $50 million."

Radio insider John Wells King tells Radio Ink something this big takes time. "When a company doubles in size, it faces real challenges in getting everyone on the same page, and implementing the synergies that likely motivated the merger/acquisition in the first place," he says. "This, of course, is nothing new in the broadcasting industry generally, nor to Cumulus and Citadel in particular. Both have the resources to mount the challenges, having faced similar circumstances in their history as the industry went through consolidation."

Bishop Sheen of Wells Fargo Securities always has both eyes on radio, and he says the first half of a targeted synergy goal is usually met quickly and easily, but the second half can be daunting. "It can take years, if it's captured at all," he says. "The good news: Big platforms can and do command market share. But the bad news is the infrastructure they tend to take on can make them move more like battleships than speedboats."

Sheen goes on, "Radio is a very management-intensive business -- always has been -- so execution is all about management from the top down. More good news: Lew Dickey is not a rookie nor a financial migrant. He grew up in radio, has been involved in the executive suite for 13 years, through good times and bad. If anyone can make it work, you would think it would be Lew. Stay tuned."

Doyle Hadden, President of Hadden & Associates, brokers many deals. In fact, thousands of deals over 30 years. He says getting everyone on the same page as a company doubles in size is simple for some, difficult for others. "Depends a lot on the staff and the buyer's management team," Hadden says. "However, what I have witnessed in the past and what I suggest to buyers and sellers is to retain the seller in a certain capacity, maybe as a consultant for six months to maybe a year post-closing, to help make for a smooth transition. Some key employees may have enjoyed working with the predecessors, but the chemistry just does not work with the new people and creates turmoil in the workplace unless the employees can reach out to their previous bosses."

Another respected analyst told us this morning that synergy may be a little more difficult with these two companies in particular. "In this case, it is going to be a real interesting clash of differing management styles and philosophies, from my perspective," the analyst says. "Look for a lot of upper-level Citadel management to either run for the door or get pink slips. Cumulus is going to have at the same time some growing pains; it will be the ever-evolving maturation of the Dickeys in the world of radio. Citadel attempted to cut operations to higher margins, while operations suffered, in my mind. Cumulus will have to increase its margins while taking on an already cut-to-the-bone group of stations. Cumulus had better embrace new technology because they are sure going to need some additional revenue streams."

Jeff Marcus, now a partner at Crestview and part of this transaction, is no stranger to big radio mergers. Marcus is a former CEO of AMFM, which in 1999 was gobbled up by radio's big dog, Clear Channel. That was a year Clear Channel was on the hunt, having also acquired Jacor, a mere three years after Congress passed the Telecommunications Act and radio consolidation was unleashed. Cumulus wasn't even founded until 1997. How big did Lew Dickey think his company would become? Well, 14 years later, it's the number two radio company in the United States -- and growing.

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