New company third largest radio group in U.S.

The Board of Directors of the Walt Disney Company and Citadel Broadcasting have approved a definitive agreement to combine ABC Radio with Citadel Broadcasting. The widely rumored merger, was finally unveiled immediately after Wall Street stopped trading on Monday (Feb. 6) and just prior to the Disney quarterly conference call at 4:30 p.m. ET.

The newly combined company, to be dubbed Citadel Communications, will be the third largest radio group in the U.S., reaching into more than 50 markets.

When the merger is completed, Disney shareholders will own approximately 52% of Citadel Communications and Disney will retain $1.4 to $1.65 billion in cash depending on the market price of Citadel Broadcasting at the time of closing. Concurrently, Citadel shareholders will own the remaining 48% of the combined company. Valued at approximately $2.7 billion, the deal is expected to be completed by the end of the year, subject to regulatory sign-offs.

Only 22 format facilities (24 radio stations) of ABC Radio’s 72 AM and FM stations will be merged into the Citadel Broadcasting portfolio, but these stations bring in about 90% of ABC Radio’s revenue. This arrangement is a seamless blending of the two groups’ portfolio of stations. There are no overlapping interests in any markets that could have created station clusters that exceed current FCC ownership caps. The 45 stations Disney has said it plans to hold onto are its five ESPN Radio sports stations and its 40 Radio Disney outlets.

Thanks to ABC, Citadel will now have stations in eight of the top 10 Arbitron markets, excluding Philadelphia (No. 6) and Houston (No.7), along with five stations in Minneapolis-St. Paul (No.16), one in Portland, Ore. (No.24), and one in Norfolk-Virginia Beach (No.40). Prior to this deal, Citadel’s largest market had been Salt Lake City (No.31).

In addition, the merger includes the ABC Radio Networks, which create and distribute programming such as the Sean Hannity and Tom Joyner shows, to more than 4,000 affiliates. Through an exclusive 10-year licensing agreement, Citadel Communications will deliver ABC News Radio programming to terrestrial radio stations. Disney will continue to retain rights to deliver ABC News content in other formats such as broadband, wireless and satellite.

The assets joining the new company had 2005 revenue of approximately $575 million and operating income of approximately $200 million.

“Our ABC Radio business represents a premier set of assets that have been exceptionally well-managed,” Robert A. Iger, Disney president and CEO said. “ABC Radio and Citadel are a strong strategic fit that will create one of the country’s largest radio station groups. With this merger we have a unique opportunity to offer Disney shareholders ownership in a new radio leader that will be well positioned for long-term success."

“By joining forces to form Citadel Communications, our new company can continue to deliver on Citadel’s impressive record of success as well as pursue many exciting growth initiatives in the future,” added Citadel CEO Farid Suleman, who will retain his title in the new company. “We look forward to welcoming our talented new colleagues at ABC Radio who have a long history of strong market performance, and are eager to work together to integrate ABC’s top-notch assets into our new strategically enhanced radio group.”

The 24 stations Citadel is acquiring brought in about $404.3 million in 2004 for ABC Radio, according to the latest estimates available from BIA Financial Networks (BIAfn). Citadel’s own 224 stations brought in $412.5 million in 2004, according to BIAfn.

The 45 stations Disney/ABC plans to keep brought in $50.45 million in revenue for 2004, per BIAfn, with the ESPN Radio stations responsible for $30.9 million of that. The 40 Radio Disney stations, together, brought in the remaining $19.6 million.

This deal involves a complex arrangement for Disney to retain a majority-interest in the newly formed company and transfers only the most valuable of ABC Radio’s stations to Citadel.

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