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February 14, 1996

Jacor to Buy Citicasters in $770m Radio Station Deal

By MARK LANDLER

Seizing on the recent deregulation of the radio industry, Jacor Communications Inc. agreed Tuesday to acquire another large radio station owner, Citicasters Inc., in a deal worth $770 million.

By adding the 19 Citicasters stations to its lineup, Jacor will own 54 stations in 13 cities -- making it the largest collection of radio stations in the United States. Jacor will also pick up two network-affiliated television stations from Citicasters.

"We have bagged an elephant, and it is the perfect one," said Randy Michaels, president of Jacor, which is based in Cincinnati, in a conference call with securities analysts.

Radio station owners were freed to hunt elephants by the telecommunications bill that President Clinton signed last Thursday. Under the bill, companies can own an unlimited number of stations nationwide and up to four AM and FM stations in most markets. Previously, they had been limited to 35 stations nationwide and two AM and FM stations in any one market.

Radio station owners have pushed for this higher ceiling because if they can own multiple stations in the same markets they can generate huge savings by combining the advertising sales staffs and other back office functions. Owning more than one station also gives companies the ability to offer potential advertisers more attractive packages.

Even before the bill passed, radio station owners had begun a land rush to line up stations. And analysts said the industry was quickly consolidating into a handful of giants like Infinity Broadcasting and Westinghouse Electric Corp., which recently acquired CBS.

"There is an absolute frenzy going on out there," said Herbert McCord, chief executive of Granum Communications, a rival radio station group backed by Kohlberg Kravis Roberts & Co.

Jacor is controlled by the Chicago financier Sam Zell, while Citicasters is controlled by the investor Carl H. Lindner, through his company, American Financial Corp.

Just last week, Jacor bought Noble Broadcast Group, a station group based in San Diego, Calif., that owns 12 AM and FM stations, for $152 million. So in two weeks, Jacor has spent nearly $1 billion on stations.

"They had to get bigger or get out of the market," said Harry DeMott, a broadcasting analyst at CS First Boston. DeMott said that while Infinity and Westinghouse vied for dominance in the top 10 markets, companies like Jacor and Evergreen Media were fighting it out in second-tier markets like Atlanta, Cincinnati and Tampa, Fla.

"If you're not one of those companies in those markets," he said, "it's going to be very difficult to compete."

Michaels acknowledged that some shareholders had been impatient with Jacor for not jumping into the acquisition game. And the company's back-to-back deals won acclaim from Wall Street. In Nasdaq trading, shares of Jacor rose 37.5 cents, to $18.875, while shares of Citicasters jumped $1.625, to $28.625.

Jacor will own four FM and two AM stations in Cincinnati, and in Denver it will own four FM and four AM stations. McCord estimated that Jacor would control more than half the total advertising dollars spent on radio in both cities. "They will be a powerhouse," he said.

Under the terms of Tuesday's deal, Jacor has agreed to acquire Citicasters for $620 million in cash, or $29.50 a share. Moreover, Jacor said it would assume $150 million in debt from Citicasters, which is also based in Cincinnati. Michaels said he expected the transaction to be completed by the end of the summer or the early fall.

Analysts and investment bankers said the deal was reasonably priced, given the recent spate of radio acquisitions. DeMott said that Jacor was offering a multiple of roughly 12 times Citicaster's projected 1996 operating cash flow of $63 million.

In addition to the $29.50 a share in cash, Jacor agreed to offer Citicasters shareholders one warrant for every five of their shares. If the deal is not completed by Sept. 30, Jacor will increase its payment by 22 cents a share for every month that the transaction is delayed.

McCord said that in some recent deals, radio stations had commanded a multiple of 20 times operating cash flow.

Some analysts predicted that Jacor would sell the two television stations owned by Citicasters, which are in Cincinnati and Tampa, to reduce its more than $900 million in debt. Alternatively, the company could swap the stations for more radio stations. However, Michaels said that Jacor's "inclination" was to hold on the stations.

"We think the opportunity of owning a gazillion radio stations and a television station in one market is terrific," he said, referring to Cincinnati and Tampa, where the company will own four FM and two AM stations. Michaels added that the stations could "shamelessly cross-promote" each other.


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