Deal Joining 550+ Stations Under One Owner Seen Getting FCC OK

Some at the bureau see review of Cumulus-Citadel as relatively straightforward, given the companies seek no waivers of FCC rules and will comply with limits on the number of stations that can be owned in each market, an agency official watching the review said. Another commission official said FCC members may not need to vote on the deal, if no new policy matters are raised by it. The officials said it doesn’t appear the regulator has made a decision on whether the deal can be approved or denied by staffers on delegated authority, and the review doesn’t appear to be nearing completion. A bureau spokeswoman declined to comment.

No one has opposed the transaction outright, though Free Press and the Future of Music Coalition each said the deal raised concerns, a review of filings in docket 11-66 showed. That there are no opponents bodes well for the deal being approved, said station broker Frank Boyle. “There really wasn’t that much of an overlap for two groups of really jumbo size, and that’s sort of eliminated the common foundations on why there are typically petitions to deny.” He expects approval this year, and the companies have said they expect to complete the transaction in 2011.

Cumulus CEO Lew Dickey visited the FCC shortly after the company said it was buying Citadel to make the case for approval, agency officials said. They said he met with commissioners’ offices and with bureau staffers. He filed a declaration listing additional public interest benefits of the deal, posted Thursday to the docket. Expanding HD Radio and investing more in programming were among the benefits he cited. Dickey pledged that a trust that’s getting 14 radio stations Cumulus will divest, so it won’t exceed ownership limits, will use “commercially reasonable efforts to sell the stations to ‘eligible entities,’ as defined in FCC rules, as well as entities otherwise controlled by minorities and women.” Policy Counsel Corie Wright of Free Press said that commitment is a good one and there ought to be FCC requirements for the company to live up to its promises. A Future of Music Coalition official declined to comment.

"HD Radio will be a particular focus of those new programming initiatives,” with the more than $50 million in savings from the deal, Dickey wrote. Digital radio “has not lived up to its potential. Very few receivers have been distributed to the public, and programming initiatives for HD Radio have been minuscule,” he added. “Cumulus is committed to investing more monies in HD Radio” at the combined company “and in taking a more active role in facilitating the placement of HD Radio in cars and on mobile devices -- the two areas where distribution is sorely needed.” The deal “will benefit the radio industry at large,” after revenue fell 25 percent to $15.7 billion last year from 2007, “wiping out virtually all of the profit in the industry,” Dickey wrote.

Digital radio’s rollout would be helped by Cumulus-Citadel, because bigger companies have more leverage with consumer electronics device makers, said HD Radio Alliance President Peter Ferrara. But he said radio broadcasters are farther along in getting more devices in autos and that are portable to use the chips that let the programming be received than Dickey gives the industry credit for. “Any and all attention” to “increase emphasis on HD Radio programming, devices and consumer interest I am 100 percent for and very happy to have them be a party to it,” he said of the merging companies. “However, when you look at the progress that has really been made” in the last five years, “throughout this economic downturn, I am really excited about the future of HD Radio."

There were about 2 million HD Radio devices in use as of early 2010, the last time the company that licenses the technology to radio stations gave us a total. An executive of that firm, iBiquity, had no comment. Cumulus has never been a member of the HD radio group, and Citadel isn’t now, while Clear Channel, CBS, Entercom and Emmis are other major radio broadcasters that are participants, Ferrara said. Dickey’s assessment of where HD Radio stands is a bit too pessimistic, Ferrara said. “Would I love to be further ahead of where we are? Of course I would. But overall we have followed the progress of technology by advancing” a step at a time, he added: “It’s taken a little bit longer because of the recession."

Cumulus-Citadel “will hopefully inaugurate a dramatic change in the financial markets for radio,” with more than $500 million in new equity investment from Crestview Partners and Macquarie Capital and $600 million in bonds, Dickey said. The deal, along with the recently completed $500 million purchase of Bonneville radio stations by Hubbard Broadcasting, has “renewed some faith in acquisitions,” said Vice President Mark Fratrik of BIA/Kelsey. “The ability for both these acquisitions to get needed financing is a reassuring sign,” he said. “Are we going to expect a land rush? Probably not. But I do expect some more increased activity” in M&A. Last year saw $354 million in total U.S. radio M&A that were publicly disclosed, compared with a high of $23 billion in 2006 when Clear Channel agreed to be taken private, Fratrik said. The FCC approved that deal 5-0 in 2008 (CD Jan 10 p5).

Cumulus and Citadel deserve “credit” for saying they'll comply with ownership rules by divesting the 14 stations, and making other public interest commitments, Wright of Free Press said. “Those are very nice promises, but they remain just that,” she said. “I am skeptical of voluntary conditions,” though she said she’s pleased Dickey said the trust would use “commercially reasonable methods to divest to new entrants,” Wright said. “All of this stuff sounds great -- I really hope it happens. If it does, it really has the potential to increase diversity of radio station ownership. Maybe it has the potential to increase the penetration of HD Radio."

Likely buyers for the 14 stations to go on the block are broadcasters with radio outlets in the same markets, Boyle and Fratrik said. “Once the sale goes through, everyone will know within the first week if there are in-market guys who will buy the singletons,” Boyle said. “At least two or three guys that have their checkbooks ready” would likely bid on stations in some of the better markets, including Harrisburg, Pa., where FM stations WCAT Carlisle and WWKL Palmyra will be divested, Boyle said. “Not-great markets” include New York’s Long Island, where WELJ(FM) Montauk will be for sale, he said. An onslaught of M&A is unlikely for radio, Boyle predicted: “I have 10 or 15 guys who would like to buy stations” but can’t get money from banks to fund deals.