Clear Channel Moves Closer to Buyout

Clear Channel Communications, Inc. (CCU) took another step forward last Friday in its $19.5 billion go-private transaction led by Bain Capital and T.H. Lee Partners with the sudden closing of the sale of its television division to Newport Television, LLC, a company backed by another private equity group, Providence Equity Partners.

In recent months, there had been a number of reports that the television sale had been derailed- first by Providence Equity’s desires to renegotiate the price, and second by its lender, Wachovia (WB), which stated the renegotiation was a material change that allowed it to back out of the deal in the midst of the broader credit crunch.

Both instances led to litigation; however, a resolution was apparently found last week. Amended terms of the deal included the following, per the company’s press release:

Newport Television LLC, a holding company formed by Providence Equity Partners Inc., confirmed today that they have agreed to amended terms of the previously announced acquisition of Clear Channel’s Television Group by Newport Television and have completed the transaction. Under the revised terms, with working capital adjustments, Providence paid $1.012 billion, a $212.5 million or 17% reduction to the original purchase price. Providence’s total equity commitment was approximately $260 million, a $102 million or 28% reduction from the terms of the original agreement, with total leverage reduced by $110 million or 12%.

Clear Channel announced they would sell the television division as well as over 400 of its smaller market radio stations as part of the overall deal to be acquired by Bain and T.H. Lee. While the larger deal was not contingent of the smaller divestitures occurring, it was seen by many to be an important part of the process as Clear Channel pares back its holdings to focus on a more defined operating strategy as a private company.

In addition to the troubles it found in selling its television division, Clear Channel also had issues with a number of the sales of its radio properties as some would-be buyers found themselves victims of the overall turbulence in the financial markets unable to attract adequate financing to close certain transactions. In some cases, these sales too ended up in litigation between the parties.

While all seems to be back on track now for Clear Channel, with a number of published reports circulating that a closing of the larger deal is imminent, the company is not confirming or denying anything. Interestingly, the spread on the deal had been tightening dramatically from its previous low $30 range inching back towards the ultimate take out price of $39.20 in anticipation of these events, but then took a pretty pronounced dive on the open Monday morning, trading back in the $31 range at one point.

For a transaction that just cleared a major hurdle with an imminent closing ahead, this re-widening of the risk spread seems peculiar. Presumably, the Bear Stearns (BSC) fiasco has the market wondering what other financial institutions are next, and whether this deal will have new issues arise in its closing.

Time will tell, but for now it seems that the company is on the right track. Having this deal close is important to the health of the overall radio sector as it is casting a long shadow of uncertainty on other companies in the radio industry. My opinion is that once CCU closes, more certainty will come in the other major go-private deal in the space involving Cumulus Media (CMLS), and eventually we could see other high quality names like Cox Radio (CXR) and Entercom (ETM) announce their own intentions to leave the public arena in buy-out scenarios.

Disclosure: none

DISCLAIMER: This article reflects the individual views of Mr. Hannan and may not be attributed to any person, company or other entity with whom Mr. Hannan is affiliated.

Comments

[CrossProfit_:]

"For a transaction that just cleared a major hurdle with an imminent closing ahead, this re-widening of the risk spread seems peculiar."

See:
seekingalpha.com/artic...

As stated in the article, there is a logical explanation for the move.

CrossProfit
Disclosure: long CCU, see:
www.crossprofit.com/ar...

For further in-depth understanding as to which deals close and which deals are at risk, see:
www.crossprofit.com/ar...
(Takes about 5 minutes to read entire article - emphasis on 'the ten commandments'.)

CrossProfit

2008 Mar 18 06:08 AM

[Risk Arb:]

If you want to track the arbitrage profit spreads for the CCU merger, you can visit www.mergerinvesting.co...

2008 Mar 18 10:19 PM