On Wall Street, deals sometimes turn on who your friends are.
That could be one reason that
-- once an underdog in the bidding battle for
ABC radio assets -- has recently emerged as the deal's front-runner. Along with Citadel's radio experience -- CEO Farid Suleman is a respected industry veteran -- the company has a formidable ally in its corner.
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 --
-- which is the same bank advising Disney on the sale of ABC radio.
Goldman Sachs declined to comment on the transaction. Disney and Forstmann Little couldn't be reached for comment.
ABC Radio was first said to be for sale back in July, with radio companies
( CXR), and
, plus private equity company Kohlberg Kravis Roberts, all eyeing bids. One by one, the others dropped out, and lately the main buzz had been around Entercom and KKR.
While Citadel was always somewhere in the picture, it never seemed to be in the forefront. "They were certainly considered a distant third," said one investment banker close to the deal. On Monday, however, Citadel emerged as the lead bidder, surprising some people working on behalf of the other companies.
Shareholders seemed to be a bit surprised as well. After news broke on Monday, shares in Citadel dropped 5% and have not recovered.
To be sure, Citadel's last bid, which at $2.9 billion is $100 million above its closest competitor, has economic merit. Nevertheless, the role of connections in the auction process is viewed by many Wall Street observers as giving the bid an edge that transcended price.
"Ted Forstmann, one of the pioneers of the leveraged buyout business who has historically given his business to Goldman Sachs, was said to do a lot of the work on behalf of Citadel," said the investment banker. "
Forstmann was very supportive of an aggressive bid to win these assets."
Bankers say the Citadel deal will probably 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, however, would govern the assets. Although this type of deal is pursued because of the tax benefits to Disney, it does give Disney an extra incentive to be careful when picking the winner.
Along with the price advantage, Citadel has a number of other things going for it. The company has 213 radio stations in 47 markets, and would fit nicely with the ABC stations. It is run by industry veteran Farid Suleman, who Citadel hired in 2002 from Infinity Broadcasting, the second-largest radio station group in the U.S. and formerly a part of
before its recent spinoff into
Suleman's leadership skills would give Disney a lot of confidence that Citadel could compete with any other strategic bidder, said the banker.
Citadel also has an advantage against its private equity competitor, KKR -- Forstmann Little. Ted Forstmann, a driving force in the private equity business, has a solid relationship with Goldman Sachs and a strong arm on many Wall Street firms because of his history of huge deal volume.
"All other things roughly equal, including price, Goldman may be inclined to work with an industry player that will no doubt include them in all the upcoming financing or refinancing that has to be done," said the banker. Given Forstmann Little's active nature, that's a big carrot.
Arguably, of course, KKR has the same power when it comes to behemoth transactions that gain negotiating power on Wall Street. But, in this case, Forstmann Little has almost exclusively used Goldman as its investment bank in past transactions with Citadel.
In June 2001, when Forstmann acquired the Citadel radio broadcasting assets for about $2.0 billion in cash, the company used Goldman as its adviser. Less than three years later, Forstmann decided to spin part of the company off to the public in an IPO that raised over $575 million. The sole book runner on that deal -- an honor in almost any IPO -- was given to, again, Goldman.
While Citadel does seem to have the right fit -- experienced management, a driving private equity force and a top-notch relationship with the advising bank, not to mention the highest price -- its relationship with Goldman has some bankers wondering if there was ever a chance for anyone else.
"You have a long-time private equity client of Goldman, Forstmann Little, and one of
Forstmann Little's portfolio clients, Citadel," the banker said.