A War Of Words Breaks Out As Citadel Responds To Cumulus And R2 Investment Statements

Made Two Offers For Citadel

When CITADEL BROADCASTING reported receiving two buyout offers earlier this month (NET NEWS 12/6), many insiders pointed to CUMULUS MEDIA as making one of the offers. TODAY (12/17), CUMULUS has confirmed that on NOVEMBER 29th, it made a proposal to the Board of Directors of CITADEL BROADCASTING CORPORATION to acquire all of the outstanding equity of CITADEL for $31 per share.

The proposed transaction values CITADEL as an enterprise at approximately $2.1 Billion. The merger would have allowed the CITADEL shareholders to elect to receive cash or CUMULUS stock, with a total of up to $1 Billion of cash to be paid, representing about 71% of the consideration to Citadel shareholders.

On DECEMBER 6th, CITADEL informed CUMULUS that "the board of directors of [CITADEL] rejected this proposal as not being in the best interests of [CITADEL's] shareholders."

On DECEMBER 16th, CUMULUS delivered a letter to CITADEL's Board of Directors reiterating its offer and its desire to reach agreement on a transaction that would deliver superior value and substantial liquidity to CITADEL's shareholders.

CUMULUS Chairman/CEO LEW DICKEY commented, "This offer continues to represent a superior alternative in value, liquidity and potential growth for the former secured creditors of CITADEL who, post-bankruptcy, are now the owners of the company."

Citadel Shareholder R2 Investments Urges Merger Proposal Consideration

R2 INVESTMENTS, LDC, one of the largest owners of CITADEL BROADCASTING's outstanding shares, has sent the following letter to the company's Board of Directors, urging it to reconsider a recent merger proposal and stop acting in its own self-interest.

Dear CITADEL Board Members:

It has only been two months since you were stopped from your last grand act of self-interest. In our opinion, you appear once again to be exhibiting an utter disregard for shareholders' interests for what we believe must be some sort of personal agenda. You have received two merger proposals from CUMULUS MEDIA, which shareholders have demanded you take seriously. You have rejected both and have refused to engage them at all. A board concerned about its shareholders should have engaged CUMULUS to negotiate the best possible deal and then would have let the shareholders vote on whether the deal is acceptable.

Your decision to move forward with a bond issue that would make any takeover much more costly -- thereby penalizing shareholders -- is really beneath contempt in our view. There is a built in $31 million payment to bondholders (directly out of equity holders' pockets) in the case of any merger. Your decision here once again potentially takes money from shareholders' pockets -- approximately $0.65 per share -- in what we can only surmise is an attempt to protect your own jobs and own self-interest.

Did you learn nothing from your last encounter with the legal system and the court of public opinion?

Last time, the judge in the SOUTHERN DISTRICT OF NEW YORK gave you a rather harsh rebuke and told you to comply with what you had told shareholders you would pay management and yourselves. Legally, what you did was wrong, but it should have never gotten to that point. Regardless of what your lawyers told you was legal, you should have known better because what you did was ethically reprehensible. You have a duty to listen to shareholders -- after all, they are the very people who elected you to the board. You didn't do it last time even though it was abundantly clear that shareholders did not want you to award stock to the management and to yourselves. And you are not doing it again this time. 

After your first trespass, we had our doubts whether you and this management team were best suited to lead this company. This last episode has confirmed our suspicions -- this company would be better off with different leadership. We find it unconscionable that this board would flatly reject the second proposal from CUMULUS despite the fact that many of your significant shareholders urged CUMULUS to submit a more attractive proposal after its initial rebuke. We believe that the majority of shareholders would agree with us, and if you put any reasonable merger proposal to a vote, you would discover that for yourselves.

In summary (and in our opinion): First, you tried to pull off one of the most egregious shams for a company coming out of bankruptcy and pay yourselves and the management team a bonus of $110 million. Now, in a similarly self-interested maneuver, you've put up roadblocks to a merger so that you can keep your jobs. Shame on you!

We are here to tell you that we will not let this latest travesty and abuse of shareholders' interests go unchallenged or unheralded. We will once again seek every legal means to address what is, in our view, a breach of your fiduciary duty to equity holders in favor of your self-interest in preserving your jobs and will hold each of you personally liable for your actions. And we will once again seek every public outlet possible to communicate the facts of this situation so that all of corporate AMERICA can know exactly what sort of directors you are.

Sincerely Yours,

R2 INVESTMENTS, LDC

Citadel Responds Harshly

CITADEL BROADCASTING CORPORATION quickly responded to both releases, stating that the letter it recently received from R2 INVESTMENTS, LDC is "full of baseless claims and is nothing more than a heavy-handed ploy by R2 to advance its own interests at the expense of CITADEL and its shareholders."

CITADEL said it is executing a strategic plan its Board of Directors believes will create significant shareholder value over time. The company said, "In JUNE, CITADEL successfully completed its reorganization plan and in DECEMBER refinanced all of its existing higher-cost debt. This will result in a substantial reduction in annual interest costs with expected savings of approximately $35 million in 2011 and beyond. With a stronger balance sheet, CITADEL is well positioned to operate its business and take advantage of market opportunities."

In early DECEMBER, as previously announced, CITADEL's Board unanimously rejected an unsolicited acquisition proposal. Said CITADEL, "Under this highly conditional proposal from CUMULUS MEDIA INC., each CITADEL share would be exchanged for $31.00 in CUMULUS shares and/or cash, subject to a cap on the aggregate cash consideration of $1 billion. CITADEL's Board had previously rejected an earlier unsolicited proposal by CUMULUS for an at-market merger with aggregate cash consideration capped at $500 million. The Board has received another letter from CUMULUS regarding its most recent proposal that does not contain any material new information.

"Consistent with its fiduciary duties, CITADEL's Board carefully considered the revised CUMULUS proposal with the assistance of its financial advisors, JP MORGAN SECURITIES INC. and LAZARD, and its legal counsel, WEIL GOTSHAL & MANGES LLP and KIRKLAND & ELLIS LLP. The Board determined that the revised CUMULUS proposal was not in the best interests of CITADEL shareholders for many reasons, including:

* The proposal was neither credible nor at an appropriate valuation. 

* CUMULUS provided no equity or debt financing commitments or terms. 

* CUMULUS has a highly leveraged balance sheet and is operating under a suspension of certain of its debt covenants that expires on DECEMBER 31, 2010. 

* CUMULUS' small equity market capitalization would require it to issue to CITADEL shareholders more than twice as many new shares as are currently outstanding, before any additional shares that would be issued in any CUMULUS equity financing. 

* Uncertainty surrounding what would be a lengthy and complex regulatory review process.
CITADEL remains committed to carefully considering any credible acquisition proposals. Contrary to false representations by R2, the recent debt refinancing would in no way preclude CITADEL from entering into a change of control transaction should the CITADEL Board conclude that it is in the best interests of shareholders."

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