Disney Merges ABC Radio with Citadel Broadcasting

Feb. 6, 2006 — -- The Walt Disney Company announced today that it is spinning off its radio network assets into a new company that will combine Disney-owned ABC Radio with the operations of Citadel Broadcasting. The $2.7 billion deal is expected to be completed by the end of 2006.

Disney will own 52 percent of the combined entity known as Citadel Communications. The company will have 177 FM stations and 66 AM stations in the nation's leading markets, in addition to the ABC Radio network.

The new entity will enter into an exclusive 10-year contract to carry ABC News Radio programming on its stations.

Disney began shopping its radio assets last year. Analysts say the deal allows Disney to turn a profitable and well-established asset, which has gone underappreciated by investors looking for high-growth media entities, into cash.

When the deal closes, Citadel will be the third-largest player in the radio network business, just behind Clear Channel and CBS Broadcasting.

Based on initial reaction, Wall Street seems to have bought in to the merger. With shares trading up more than 2 percent in the after-hours markets, the $2.7 billion deal is getting positive marks from industry analysts.

"This deal doesn't exist in a vacuum," said Dennis McAlpine, media analyst with McAlpine Associates. "The Pixar deal pushed this along as Iger was looking to get some cash into the coffers. I think people will be happy with his swap of distribution -- which there's a lot of in the market -- for content."

Disney's $7.4 billion acquisition of Pixar almost two weeks ago gave the company full ownership of hits like "Finding Nemo," "Toy Story" and "The Incredibles," as well as the company's stable of creative employees.

Before the Pixar deal was announced, analysts were expecting Disney to pay about $5 billion to $6 billion for the digital studio. Today's merger announcement helps Disney offset the premium price and gets a lagging asset off its books.

The profitable but slow-growing radio business has suffered in recent years as media conglomerates like the Walt Disney Company focus on growing the bottom line with blockbuster movie franchises and improving ad sales at their Internet and cable divisions.

Viacom recently spun out its legacy CBS broadcasting units to allow investors to choose between the dividend-paying, old-media TV and radio networks and it's faster- growing, youth-centered cable and movie assets.

Analysts and Viacom Chairman Sumner Redstone thought the slow-and-steady legacy media properties anchored the share price. Since the split, Viacom shares have increased about 1 percent as CBS has watched shares fall by 2 percent.

Today's merger is likely meant to help Disney build a similar story.

"Today's announcement of our proposed combination of the ABC Radio business with Citadel Broadcasting underscores our commitment to maximizing the value of our assets for our shareholders, while focusing our capital and management resources toward our core businesses," said Robert Iger, president and CEO of Disney in the company's fourth-quarter earnings release.

The company says profits for the final three months of 2005 were up 12 percent over a year ago, thanks to strong performance at the Disney theme parks, media networks and consumer product units.

The earnings exceeded market expectations, giving Iger a positive mark for his first quarter at the helm of Disney.

"He's been able to make the most of his first few months," said McAlpine. "He doesn't have the baggage that kept Eisner from aggressively pursuing these types of changes at the end of his tenure."

But Iger's winning ways face some challenges in the coming months, McAlpine said.

"The television upfront is going to be important for him, and he'll be fighting uphill. This year ABC has no Super Bowl or elections. The short-term look is pretty rosy at this stage. But the company will have to continue to change to meet expectations."

ABC Radio operates 69 stations -- 27 are general market and five carry ESPN programming. The other 22 stations are popular news/talk and music formats targeted to specific listening areas. These general market stations have been the division's primary revenue and income drivers, and regularly outperform their competitors in market share growth.

Citadel Broadcasting owns and operates more than 200 commercial radio stations in 47 midsize markets, such as Providence, Rhode Island; Salt Lake City and Albuquerque, New Mexico. Its stations broadcast in a variety of formats, including country, rock, news/talk and sports.