Unclear LBO Path for Clear Channel by Andrew Bary
Summary: Major institutional investors in radio and billboard $18 billion colossus Clear Channel Communications (CCU-OLD) such as Fidelity (11%) and Morgan Stanley (8%) are balking at the low $26 billion or $37.60/share LBO bid by Thomas Lee Partners and Bain Capital, saying: 1) Plans to sell off TV and small radio businesses will generate cash against CCU's $8 billion of debt). 2) Radio revenues rose 5% in Q3. 3) CCU's 90% stake in billboard operator Clear Channel Outdoor Holdings (CCO) alone is worth over $9 billion—digital billboards are a hot growth engine. 4) Bear Stearns says A CCU/CCO share swap could generate $5/share free cash flow, pushing CCU to $50/share. 5) A low 8.2 P/E to industry average of 10-11. The deal may fall on growing negative sentiment towards private equity's phenomenal LBO profits: The group's $4 billion, with $22 billion borrowed, could be worth $6 billion by closing if CCU's radio business reaches a 10 P/E valuation -- a 50% gain for them and the Mays family, which controls 7% of the company and backs the LBO. The deal also gives brothers CEO Mark and President Randall Mays fat equity options. Bottom Line: The Clear Channel LBO group could make huge, quick profits, but institutional investors might scuttle the deal or get a higher bid.
Related: Going Digital: Google Revolutionizes Billboard Ads; In Clear Channel Buyout Talks, Billboards Loom Large