SMH Capital analyst David Miller has turned bullish on Clear Channel, rating the stock a “buy” because he now believes the private equity buyout at 39.20 per share will go to closing, likely by the end of March. “In our opinion, the current arb spread of 23% represents an opportunity too ripe to ignore,” the analyst said in his upgrade announcement.
Miller notes four levels of concern which have been depressing the stock price for Clear Channel. “1) Weak December pacings, with the RAB releasing data showing December national radio business down 12% and local business down 4%; 2) The rumored collapse of the Alliance Data/Blackstone deal; 3) News flow suggesting that CCU has put itself on a company-wide austerity program; and 4) Concerns about financing, obviously the most important tenet and reflective of wider credit spreads since the deal was announced in late 2006.”
But with the price beaten down so much, the SMH analyst has changed his call to “buy” for three reasons. “1) Bain Capital does not want to pay sky-high break-up fees; 2) CCU’s austerity initiative was likely influenced by the sponsors themselves; and 3) CCU is still tremendously FCF generative, and should produce enough free cash in order to service ‘consensus’ terms.
Yes, there is downside risk. Miller sees CCU shares falling to 25-26 if the buyout craters. But his call is that the deal is probably going to close in Q1 and anyone who buys the stock now will be richly rewarded with the 39.20 per share payout.