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There was plenty of talk in the air about radio giant Clear Channel Communications (CCU-OLD) following reports that it is negotiating with investors about a potential takeover. What has been widely overlooked, though, is that Clear Channel is not just a radio play.

In the first half of 2006, only 53 percent of Clear Channel's revenue came from its radio broadcasting segment, regulatory filings show. Most of the rest came from outdoor advertising -- which could be what potential suitors are really after.

The New York Times reported Thursday that Clear Channel's founding Mays family is in talks with a consortium of investors to take the company private for more than $18.5 billion. The article, citing unnamed sources, said the consortium included three private equity firms: Providence Equity Partners, the Blackstone Group and Kohlberg Kravis Roberts.

Shares of Clear Channel, the largest radio network in the nation, have declined in recent years. Its business is being squeezed on several fronts, as listeners turn to other pursuits such as the Internet or sign up with satellite-based broadcasters such as XM Radio (XMSR) and Sirius Satellite Radio (NASDAQ:SIRI).

In addition to its radio stations, Clear Channel also owns 90 percent of Clear Channel Outdoor Holdings (NYSE:CCO), which sells advertising on billboards and in other public spaces. The domestic part of this outdoor business has been showing strong growth, and Bank of America analyst Jonathan Jacoby recently called it Clear Channel's "hidden gem."

About a year ago, Clear Channel Communications took a step to unlock the value of its outdoor subsidiary by selling a 10 percent stake in an initial public offering. It kept about 315 million shares of the unit, which are worth about $7.1 billion based on Clear Channel Outdoor's stock price at Thursday's close.

Clear Channel could decide to spin off the rest of the outdoor business. But such a move would likely force potential acquirers to cool their heels for awhile. That is because a takeover of either of the Clear Channel companies within two years of the spinoff could disqualify it from tax-free treatment.

In a research report published Thursday, Mr. Jacoby looked at the possible paths that Clear Channel might take as it considers its strategic options. He concluded that one of the likeliest outcomes would involve buyers taking the entire company private and then selling its radio assets and its international outdoor-advertising business.

What would remain is Clear Channel's domestic outdoor business, which he wrote "has the highest potential to benefit from the digital upgrade cycle." Clear Channel Outdoor is rolling out networks of digital billboards in U.S. cities, a strategy it hopes will spur faster revenue growth.

Under this scenario, Mr. Jacoby calculated that Clear Channel Communications's shares could be worth $40. They closed at $35.48 on Thursday.

Source: In Clear Channel Buyout Talks, Billboards Loom Large