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Bob Sillerman's A One Man Radio Band



He plays so many roles, investors are dizzy

Robert F.X. Sillerman has a framed photograph prominently featured in his midtown Manhattan office. It's of him, nude, in a bathtub with his young daughter. There's nothing wrong with the display, exactly, but there's something not quite right about it, either.

The same could be said for the way Sillerman runs the three publicly traded radio companies--SFX Broadcasting, Multi-Market Radio (MMR), and Triathlon Broadcasting--that he either controls outright or advises while holding a huge nonvoting stake. All told, Sillerman oversees more than 100 radio stations, making him one of the largest radio honchos in the country. But as he has assembled his growing empire, he has engaged in some practices that have brought sharp criticism from shareholders and Wall Street. A close reading of the companies' public filings shows that Sillerman has long acted as each company's investment banker, financial adviser, chief strategist--and even landlord. And he has collected fees for wearing each hat.

Sillerman "has clearly had his fingers in more than one pie for years," says CS First Boston analyst Harry DeMott. "One could argue there's nothing wrong with that, per se. A company has to pay someone a fee as an investment banker or broker. But it sent the wrong message to the market." Retorts Sillerman: "If they [don`t] like it, they can sell."

Indeed, despite a runup in the value of SFX and almost all radio stocks, thanks to telecom deregulation, SFX still trades at a significant discount to its peers (chart). MMR stock trades at an even sharper discount, while Triathlon shares have fallen 28%, to 8 1/8, in the past six months. The poor performance galls Sillerman, who boasts that given the multiples others have paid in recent months to acquire Infinity Broadcasting and American Radio Systems, SFX is "over a $100 stock." As the largest shareholder, he stands to gain more than anyone from such a surge.

But Sillerman has not waited for the wider market to hand him his payoff. Although he draws a healthy salary as chairman of SFX--$300,000, plus options in the past three years on 220,000 shares already worth $5.8 million--he has pocketed millions in fees through privately held Sillerman Communications Management Corp. (SCMC).

The 48-year-old tycoon vows that his loyalty lies with SFX, the only company he serves as an executive, and its shareholders. SFX, which had 1995 revenues of $76.8 million, has grown from 17 stations to more than 70 stations in markets such as San Diego, Charlotte N.C., and Nashville since it began an acquisition binge last fall. Sillerman, through SCMC, has acted as investment banker and broker on all those acquisitions. He pocketed $4 million in such fees for two recent deals and an additional $2 million for SFX's pending merger with MMR--a company Sillerman also founded and controls. The fees were approved by SFX's six-member board, which includes two outsiders.

RED FLAG. But that's not the end of Sillerman's gravy train. SCMC's 10-year consulting contract with Triathlon pays $466,000 a year. On top of that, SCMC collected $1.5 million in fees from Triathlon in the past year for finding acquisition candidates, negotiating credit agreements, and setting up a preferred stock mffering. The tiny San Diego-based Triathlon had revenues of only $3.5 million for the year ended Mar. 31. Even though Triathlon stations compete against SFX stations in Wichita, and the two companies could potentially want to buy the same station while Sillerman acts as the broker and investment banker for each, Sillerman says there is no conflict. "Someone should not be involved in Triathlon unless they believe that we are people of integrity," he says.

In partial recognition of the drag such fees place on the stock of all the companies, Sillerman has agreed as part of the MMR merger to eliminate the fees SCMC draws from SFX. In return, he pocketed stock warrants already worth $5.9 million and doesn't have to repay a $2.2 million loan from SFX. Triathlon will still pay its fees to SCMC, but SCMC will hand those fees over to SFX. One institutional shareholder who met with Sillerman to complain about the arrangement in early June didn't get very far. "His response was, `What's wrong with you? The stock is up, so why do you care?"' says the miffed shareholder. Sillerman says he is responsive to shareholder complaints.

DEBT-HEAVY. He got into radio in 1979, when he and his partner, New York deejay Bruce "Cousin Brucie" Morrow, bought a radio station in upstate New York. Sillerman says he did everything at the station from the "janitorial work to hanging the curtains" as he learned the business. Over the years, he and Morrow bought more radio stations, a few television stations, and launched Country Music Television. In 1989, he sold most of his holdings to Westinghouse Electric Corp.'s broadcasting division for $720 million and started again. He took SFX and MMR public in 1993, and Triathlon public last year. Except for SFX in 1994, none of the debt-heavy companies has ever posted a profit. "Earnings are not what we're currently interested in," says Sillerman, who plans to use debt to finance new acquisitions.

A likely acquisition candidate for SFX is Triathlon. SFX's habit of acquiring properties in which Sillerman already has a financial interest won't do anything to goose SFX's share price, says another big shareholder. SFX is in larger markets, while MMR is in small Eastern markets, and Triathlon is in small Western ones. "Each time Sillerman [has SFX buy one of his other companies], SFX becomes less focused and less attractive" to another radio company that might want to acquire SFX, the shareholder says.

But there are insider deals even Sillerman can't stomach. This spring, SFX said CEO Steven R. Hicks would leave to start a rival radio group with his brother, Thomas O. Hicks of Dallas-based Hicks, Muse, Tate & Furst Inc. Hicks, who was to remain a director with a five-year, $150,000 consulting fee, left in June without his board seat or consulting contract.

Why? Having him as a consultant and director, privy to SFX's strategy, would be unseemly, says Sillerman, since Hicks is now a competitor. "That was fraught with conflicts and the appearance of conflict," he says. "He's out there investing. Just imagine." An odd arrangement, to be sure. But not unheard of.By Elizabeth Lesly in New YorkReturn to top

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