Citadel Near Disney Deal

Citadel (CDL) is closing in fast on a deal to acquire Disney's (DIS) radio properties, in a transaction that is said to value the stations at between $2.7 billion and $2.9 billion, according to sources.

"They're making progress," says one person who was closely involved in a rival bid for the properties. A deal could be announced as early as Monday, when Disney is due to report earnings, and comes on the heels of Disney's move last week to buy Pixar(PIXR) for $7.4 billion to bolster its movie-animation efforts.

Disney put its ABC and ESPN branded radio properties up for sale last summer but said publicly that it would consider a number of alternatives -- including not selling. Disney's radio stations are much sought-after, given their presence in top markets including New York City and Los Angeles. Citadel currently owns 213 radio stations in 47 markets.

Citadel didn't return calls seeking comment, and a Disney rep declined to comment.

Radio companies including Entercom(ENT), Emmis(EMMS), Cox Radio (CXR) and Cumulus(CMLS), plus private equity company Kohlberg Kravis Roberts, all threw their hats in the ring. Entercom, KKR and Citadel emerged as finalists last month in what one source described as a "painfully slow" process.

The deal is expected to take the form of a "reverse Morris trust," in which Disney shareholders end up owning slightly more than 50% of the merged company and get a half-share in the profits. Citadel would govern the assets. Sources say that a deal could see Citadel owning the stations, but with long ABC and ESPN affiliate agreements structured into it. Although this type of deal is pursued because of the tax benefits to Disney, Disney has plenty of extra incentive to be careful in picking the winner.

Citadel's CEO Farid Suleman is an industry veteran who had a formidable ally in its corner throughout the process. Forstmann Little, the private equity group run by Wall Street icon Ted Forstmann, owns more than 60% of Citadel and has four of the 10 members on its board. Forstmann Little also has a favorite investment bank -- Goldman Sachs (GS) -- which is one of the two banks, along with Bear Stearns, advising Disney on the sale.

On Friday shares of Citadel were trading down 3 cents to $12.06, while Disney shares were down 8 cents to $25.02.

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