updated 2/6/2006 6:55:29 PM ET 2006-02-06T23:55:29

The Walt Disney Co. said it will sell its 22 ABC Radio stations and network to Citadel Broadcasting Corp. in a cash and stock deal valued at $2.7 billion.

The transaction gives Disney shareholders about a 52 percent stake in a new company, called Citadel Communications, which combines Citadel’s stations with Disney’s ABC assets.

The deal does not includes Disney’s ESPN and Radio Disney network.

The transaction gives Citadel 177 FM stations and 66 AM stations in the country’s top markets, making it the nation’s third largest radio group. The complex deal is structured to be tax free to Disney shareholders.

Disney also reported higher earnings in its first quarter despite a plunge in profits from its studio division.

The media conglomerate said net income rose to $734 million, or 37 cents per share, in the quarter ended Dec. 31, compared with $666 million, or 33 cents per share in the same period last year.

Revenue rose slightly to $8.854 billion from $8.666 billion in the same quarter last year.

The current quarter includes a one-time gain of $70 million, or 2 cents per share, related to the sale of assets.

The results of 35 cents per share after the one-time gain beat estimates from analysts surveyed by Thomson Financial, which had expected earnings of 30 cents per share on revenue of $8.791 billion.

Disney’s studio profits fell 60 percent during the quarter on lower box office results and home video sales. The quarter suffered from a difficult comparison with last year, which saw the theatrical release of “The Incredibles” and “National Treasure.”

The company said it expects higher revenue from the studio next quarter when its theatrical hits “Chronicles of Narnia: The Lion, The Witch and The Wardrobe” and “Chicken Little” are released on DVD.

Profits rose 51 percent at Disney’s theme parks on the success of the yearlong promotion marking the 50th anniversary of its Disneyland park in Anaheim. Attendance at the company’s two domestic parks and its parks in Tokyo and Paris grew by double digits.

Disney’s newest park in Hong Kong saw strong attendance over the Chinese New Year. The park sold out on four consecutive days during the holiday period, the company said.

Advertising revenue at Disney’s ABC television network and cable properties, including ESPN, grew by double digits in the quarter and remain strong, the company said. ABC is benefiting from strong ratings growth from hits shows such as “Lost” and “Grey’s Anatomy.”

Disney has said for more than a year it was looking to sell its ABC radio group. The company said Monday that owning the radio stations was not important to its core goals of creating popular shows, using new technology and expanding internationally.

“With this merger we have a unique opportunity to offer Disney shareholders ownership in a new radio leader that will be well positioned for long-term success,” Disney Chief Executive Robert Iger said.

Citadel CEO Farid Suleman will lead the new company.

Disney will borrow between $1.4 billion and $1.65 billion, using its ABC radio holdings as collateral. It will then either spin off or split off the stations in a transaction — depending on market conditions and other factors — that would require Disney shareholders to swap shares for shares in a new entity.

Disney would then merge the new, temporary, holding company with Citadel in a transaction that is structured so Disney shareholders won’t have to pay taxes on the sale. The debt would then be transferred to the new entity.

The rest of the value of the deal comes from Disney’s share of equity in the new radio company.

© 2012 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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