When Atlanta-based Cumulus Media sealed its $2.4 billion acquisition of Citadel Broadcasting last month, analysts welcomed it as a sign of life in the battered radio industry.
They also weren’t surprised about who was behind the move.
A scion of a family radio dynasty from Ohio, Cumulus CEO Lew Dickey Jr. has a reputation for zigging when others zag — and for taking gambles with acquisitions. A three-year buying spree in off-the-beaten-path markets in the late 1990s both created the company in the first place and nearly brought it to its knees, before Dickey’s deal-making stabilized it again.
The newest acquisition is Dickey’s biggest yet. It will nearly double Cumulus’ station holdings, from 347 to 572. But its impact goes further than that.
Cumulus will remain the country’s second-largest radio company in terms of stations. But Las Vegas-based Citadel’s stations are in bigger markets. Citadel also owns what was once the ABC broadcasting network. Cumulus is swallowing an elephant.
The move follows a hard two years, not only for Cumulus and its acquisition target — Citadel emerged from Chapter 11 bankruptcy last year — but for the radio industry, which was heavily exposed to the downturns in automobile sales and housing and advertising revenue from those businesses.
The radio industry was licking its wounds when Dickey announced last year he wanted to begin acquiring again: “More than a few people looked at him like he was crazy,” said Bishop Cheen, a media analyst with Wells Fargo.
Today, Dickey said the recession’s pain was the reason for his move: “This industry has seen its revenue base contract from $21 billion to $15 billion, and the $5 billion was most of the cash flow.’’
The deal still needs approval from federal regulators. Then the work of merging the two corporate cultures begins. Cumulus will pay $37 a share for Citadel, in a combination of cash and Cumulus stock, using up to $500 million equity financing.
The reaction among analysts has been positive.
“Some other executives may say he overpaid,” said Justin Nielson, a media analyst with SNL Kagan. “But he wanted to get bigger and get bigger fast. And he went through some tough negotiations with Citadel. He was trying to get it at a lower price point, but couldn’t get the deal done. And then he finally did.”
Lew Dickey Jr. grew up in the radio business, working — along with four brothers and a sister — in his father’s radio station in Toledo, Ohio. The Dickey holdings later expanded to the South, including stations in Nashville and Atlanta, as well as an Atlanta-based broadcast strategy consulting company called Stratford Research.
A graduate of Stanford, with a Harvard MBA, Dickey was consulting with Stratford when a confluence of events in the mid-1990s led him to co-found a radio company of his own. The first was a contract with a Milwaukee private equity firm head named Richard Weening, who dabbled in radio. The second was Congress’ deregulation of the radio industry.
In 1995, Weening hired Dickey to help straighten out a handful of his radio stations in the Caribbean: The stations, Dickey told a Milwaukee publication a few years later, “needed an awful lot of work.”
The Caribbean job was wrapping up when Congress lifted radio ownership limits in 1996. Until then, a single company had been allowed to own no more than 40 stations nationally. The new rules eased both that and ownership limits within local markets, kicking off a frenzy of acquisitions that eventually created giants like Clear Channel.
Dickey saw an opportunity in smaller markets other players ignored. He laid the strategy out to Weening on a plane ride from Trinidad, according to news accounts at the time.
Dickey had radio expertise. Weening knew money. The two founded Cumulus in 1997, with Weening as its CEO and Milwaukee as its headquarters. Dickey remained in Atlanta, shepherding an aggressive acquisition drive. Over the next few years, Cumulus acquired stations at a pace of more than one per week.
The stations were in mid-sized cities like Abilene, Texas; Myrtle Beach, S.C.; Augusta; and Dubuque, Iowa — and in cities as small as Boothbay Harbour, Maine; and Smiths, Ala. By late 1998, Cumulus had 185 stations. By 2000, it had more than 300, with more than 3,000 employees, a market capitalization of $1.3 billion and a stock price of $53 per share.
Then came a slew of bad news in 2000.
First, Cumulus’ fourth quarter 1999 earnings fell far below expectations. Then its accounting firm and its chief financial officer resigned and it restated earnings. Its stock price dropped to $3.19 per share.
Weening later conceded the company grew too fast.
Cumulus recovered, largely due to Dickey’s restructuring of a deal with Clear Channel. Cumulus unloaded dozens of stations in exchange for 14 Clear Channel ones and more than $200 million in cash.
Dickey took over as CEO and relocated the headquarters to Atlanta in 2000. The company did a $1.2 billion acquisition in 2006, but “haven’t done anything like what we did in the 1990s,” Dickey said.
It was at a broadcasters convention early last year that Dickey announced he was on the hunt again.
It was a stunning ambition for the time, according to the Jones Day attorney who later handled the Citadel deal. “You had a hangover from 2009,” said Bill Rowland, the Atlanta head of transactional practices for Jones Day. Both inside and outside the recession-battered radio business, mergers and acquisitions were at a standstill.
“The finance markets were very closed,” Rowland said. “No one knew if the economy had hit bottom.”
Dickey’s target became clear in November, after Citadel’s board rejected his first offer, prompting a public outcry from Citadel shareholders.
By then, said Rowland, financing and fears were both loosening and other companies were beginning to look at acquisitions, too.
Dickey says he plans to use the larger platform to help the company invest in new Yelps and Twitters.
“I really view the business model evolving to an integrated marketing solutions provider that uses on-air to inspire and online to inform.”
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