In the biggest radio deal of the year and one that offers a preview of changes to come in the industry, Jacor Communications Inc. agreed Tuesday to buy Citicasters Inc. for $770 million. It would make the Sam Zell-controlled company the owner of the largest group of stations in the country.
The deal is the biggest broadcasting transaction to be announced since President Clinton signed the telecommunications reform bill last week. The bill promised to set off a flurry of acquisition activity in radio and television.
This transaction would not have been allowed under previous regulations, which barred any one group from owning a total of more than 40 stations. The bill eliminates that limit, though owners are still restricted in the number of stations they can have in major markets.
Jacor will own 54 stations once it completes the purchases of Cincinnati-based Citicasters and of Noble Broadcast Group Inc., which it agreed to buy two weeks ago for $152 million.
Many of the stations are in mid-size markets, so even though the company will own the largest number of stations, it will rank behind several other companies in station revenue. The company said it will rank third behind Westinghouse Electric Corp., which owns CBS Inc., and Infinity Broadcasting Corp., which has been an aggressive buyer during the last year.
Whereas radio owners such as Infinity and Evergreen Media Corp. have focused their acquisitions on stations in top 10 markets, Jacor and a few other companies have foraged in smaller markets, driving the prices for those up.
Citicasters owns 19 stations--14 FM and five AM. Jacor owns 23 stations and will get 12 from Noble.
Analysts say many Citicasters stations are well-run and therefore lack great room for cash-flow improvement. Still, Jacor could squeeze cost savings from the acquisition because of overlaps in markets that include Tampa, Fla., Cincinnati and Atlanta, according to Frank Bodenchak, an analyst at Furman Selz.
Radio owners pushed for reform as a way to consolidate ownership in individual markets, reduce overhead costs and provide stronger bases for ad sales. With the purchase of CBS, for instance, Westinghouse now controls four or more stations in several markets.
“This is the logical progression one would have expected after the telecom bill,” said Norman J. Pattiz, chairman of Westwood One, the Los Angeles radio programmer now affiliated with Infinity. “This is just the beginning. There’ll be more deals like this changing the radio landscape over the coming months and next few years.”
The Jacor transaction is a vote of confidence in the growth potential of the radio business by Sam Zell, the Chicago real estate magnate who runs the Zell/Chilmark Fund, also of Chicago, which owns 70% of Jacor. Zell has been known as a bottom-fisher, someone who pays discounted prices for distressed properties, but he paid full value for both radio companies.
Analysts said Jacor paid an amount in line with recent radio multiples.
“It creates some value out of thin air. That is very much Sam Zell, or any good investor,” said Frank Wood, who operates 14 stations at Secret Communications and was Jacor’s president from 1986 to ’90.
Shares in Jacor rose 37.5 cents to close at $18.875; Citicasters shares jumped $1.625 to $28.625. Both trade on Nasdaq.
Jacor will pay Citicasters’ stockholders $29.50 a share, or $619.5 million, in cash and assume $150 million in debt. The purchase price does not include five-year warrants for Citicasters’ shareholders that allow them to purchase one-fifth of a Jacor common share at $28 apiece.
Citicasters is controlled by Carl Lindner, the Cincinnati-based investor who controls American Financial Corp., a banking and insurance company.
Some analysts speculated that Zell would put together a strong station group and then sell. But Zell/Chilmark said it plans to keep its investment in Jacor, made six years ago.
“There’s no question Sam Zell and Zell/Chilmark are committed to Jacor and to radio for the long term,” said David Rosen, an executive at Zell/Chilmark.
Zell built a personal fortune--estimated at just under $1 billion by Forbes magazine--in the real estate industry.