Score one for the activist hedge funds.
In a highly unusual move, the board and management of Citadel Broadcasting have agreed to rescind $110 million in stock compensation after R2 Investments, a hedge fund based in Dallas, attacked the radio company for its executive compensation practices, according to a court filing late Tuesday in Federal Bankruptcy Court in Manhattan.
R2 Investments accused Citadel’s management and directors of “a shocking display of corporate greed and dishonesty” for rewarding themselves with stock grants worth $110 million — more than $55 million to its chief executive. The Citadel board also awarded more than $1.35 million of stock to each of its members — “a disturbing game of quid pro quo,” the filing by R2 contended.
A spokesman for R2 declined to comment.
R2 asked the judge to revoke the stock award “to prevent one of the most egregious frauds by a company emerging from bankruptcy under Chapter 11.”
Citadel, the nation’s third-largest radio company with more than 200 stations across the United States, exited bankruptcy protection as a privately held company in June. It emerged under the control of its lenders, which in addition to R2 includes JPMorgan Chase and the buyout firm TPG.
R2, based in Fort Worth, is part of a family of funds called Q Investments. Run by Geoffrey Raynor, who formerly worked with the billionaire Bass brothers, R2 is a distressed-debt fund known for its aggressive tactics. Last year it sued Carl C. Icahn over a transaction involving XO Communications.
R2 argued that the payouts to management and the board were contrary to the company’s reorganization plan, which called for awards of options, not common stock grants, the filing said. Issuing common stock to Citadel’s board and management instead of options substantially diluted the new owners’ stake in Citadel.
In Tuesday’s filing, Citadel’s lawyers said the company’s board would issue stock options instead of common shares. This was done “to enable the company to focus on those business matters that will maximize value for its shareholders,” according to a Citadel statement.
The issue of management compensation had been hotly contested during the Citadel bankruptcy process, participants in the case said. Farid Suleman, who has served as the chief executive since 2002, said in testimony that he had tried to get common stock in the company’s reorganization but instead received options. Of the $110 million, more than $55 million was paid to Mr. Suleman.
After Citadel’s exit from bankruptcy, the new board, which was appointed by the company’s new owners, decided to award common stock grants to management instead of options.
“Citadel now has the highest-paid management in the terrestrial radio broadcasting industry,” said R2’s filing. If the stock awards are allowed to stand, it “would be a blueprint for all other management teams to emulate in order to loot company coffers.”
The filing continued: “There would be a new tag line in corporate America: ‘Attention all C.E.O.’s — not happy with your pay package? File your company for bankruptcy, mislead the judge about your true intentions immediately after you emerge from Chapter 11, and then you can become the highest-paid executive in your industry and potentially even become worth well over $100 million.’ ”
In a highly unusual move, the board and management of Citadel Broadcasting have agreed to rescind $110 million in stock compensation after R2 Investments, a hedge fund based in Dallas, attacked the radio company for its executive compensation practices, according to a court filing late Tuesday in Federal Bankruptcy Court in Manhattan.
R2 Investments accused Citadel’s management and directors of “a shocking display of corporate greed and dishonesty” for rewarding themselves with stock grants worth $110 million — more than $55 million to its chief executive. The Citadel board also awarded more than $1.35 million of stock to each of its members — “a disturbing game of quid pro quo,” the filing by R2 contended.
A spokesman for R2 declined to comment.
R2 asked the judge to revoke the stock award “to prevent one of the most egregious frauds by a company emerging from bankruptcy under Chapter 11.”
Citadel, the nation’s third-largest radio company with more than 200 stations across the United States, exited bankruptcy protection as a privately held company in June. It emerged under the control of its lenders, which in addition to R2 includes JPMorgan Chase and the buyout firm TPG.
R2, based in Fort Worth, is part of a family of funds called Q Investments. Run by Geoffrey Raynor, who formerly worked with the billionaire Bass brothers, R2 is a distressed-debt fund known for its aggressive tactics. Last year it sued Carl C. Icahn over a transaction involving XO Communications.
R2 argued that the payouts to management and the board were contrary to the company’s reorganization plan, which called for awards of options, not common stock grants, the filing said. Issuing common stock to Citadel’s board and management instead of options substantially diluted the new owners’ stake in Citadel.
In Tuesday’s filing, Citadel’s lawyers said the company’s board would issue stock options instead of common shares. This was done “to enable the company to focus on those business matters that will maximize value for its shareholders,” according to a Citadel statement.
The issue of management compensation had been hotly contested during the Citadel bankruptcy process, participants in the case said. Farid Suleman, who has served as the chief executive since 2002, said in testimony that he had tried to get common stock in the company’s reorganization but instead received options. Of the $110 million, more than $55 million was paid to Mr. Suleman.
After Citadel’s exit from bankruptcy, the new board, which was appointed by the company’s new owners, decided to award common stock grants to management instead of options.
“Citadel now has the highest-paid management in the terrestrial radio broadcasting industry,” said R2’s filing. If the stock awards are allowed to stand, it “would be a blueprint for all other management teams to emulate in order to loot company coffers.”
The filing continued: “There would be a new tag line in corporate America: ‘Attention all C.E.O.’s — not happy with your pay package? File your company for bankruptcy, mislead the judge about your true intentions immediately after you emerge from Chapter 11, and then you can become the highest-paid executive in your industry and potentially even become worth well over $100 million.’ ”
