It’s only taken 20 months, but the deal to take Clear Channel Communications private (more or less) should close the last day of this month. It was back on November 16, 2006 that CCU announced a deal to be taken private by a group led by Thomas H. Lee Partners and Bain Capital, with participation by the Mays family.
That original deal was for $37.60 per share and the total deal, including debt assumption, was put at $26.7 billion. Much has changed since then, but the buyout is finally headed for the finish line.
The buyout deal was bizarre right from the get-go. First off, Mark and Randall Mays had teamed with Kolhberg Kravis Roberts & Co. to take CCU private in a management-led leveraged buyout. But when TH Lee and Bain topped the KKR bid, they changed horses in mid-stream and joined the winning bid. Apparently TH Lee and Bain never sought to put together a management team of their own, but assumed that they could get the existing management to join them.
Although the $37.60 offer represented a premium of about 25% to the CCU price before it was pushed up by bidding rumors, some big shareholders immediately balked at the price as too cheap. Highfields Capital, in particular, pressed for a better deal and vowed to organize enough opposition to vote down the deal. Since CCU is a Texas corporation, a two-thirds vote of approval by all shareholders is required to sell the company, so it looked like the dissidents would be able to make good on their threat.
In April 2007 the offer was increased to $39.00, but even that met resistance.
After negotiating with Highfields and other big shareholders, the would-be buyers agreed to a price of $39.20, but with an added provision that existing shareholders would have the option of taking stock in the new company, CC Media Holdings, instead of cash, up to approximately 30% of the stock of the new company, with no one company holding more than 9.9%.
With the former dissidents onboard, shareholders gave the buyout a thumbs-up in September. FCC and DOJ approvals were needed, but those were mere formalities and were granted in due course as Clear Channel management, after first hoping to close before the New Year, looked to a Q1 2008 closing.
Meanwhile, the credit markets had gone into the tank in the second half of 2007. Big investment funds were licking their wounds from having bet heavily on mortgage-backed securities, which collapsed as default rates shot up on sub-prime home loans. The investment pool to buy debt from multi-billion-dollar deals dried up. Some private equity firms, notably including original CCU bidder KKR, paid to abandon deals rather than go to closing. Rumors swirled on Wall Street that TH Lee and Bain would do the same to CCU. But they denied that, and said they intended to go to closing.
It was not the private equity firms, but rather the consortium of bank lenders, who proved to be the obstacle. Rather than a late-March closing, it was a late-March march to the courthouse. Clear Channel sued six big banks in a Texas state court for $26 billion, charging them with “tortious interference” for not funding the buyout on the agreed terms. The banks also sued in New York and sought to get all of the legal battling moved there, or to federal court. But they were outmaneuvered by Clear Channel’s lawyers and the lawsuit for the greatest damages, $26 billion, stayed in CCU’s backyard.
With that Texas-size lawsuit hanging over their heads, the banks, CCU and the private equity firms came to terms in May. The deal would go forward, but the buyout price was cut to $36, a buck-60 less than even the original offer that had outraged shareholders, but an offer that has sparked no public opposition in the current depressed market for media stocks. The stock option remains, though, and Highfields is committed to owning a big chunk of CC Media Holdings.
Under the settlement, the banks and private equity firms have escrowed all of their funding for what is now a $23.8 billion deal. Only two steps remain for the long, drawn-out deal to go into the history books.
Shareholders will vote July 24th on whether to approve the sale of the company. The two-thirds approval requirement remains, but, as noted, there has been no indication of any organized opposition. Assuming the deal wins shareholder approval, closing is set for July 30th. Then the champagne corks can be popped in San Antonio.
RBR/TVBR observation: We, like everyone else in the radio industry, are waiting to see what the new Clear Channel will be like. After putting all sorts of discretionary spending and hiring on hold at the beginning of the year, Clear Channel management has promised that spending will return to “normal” post-closing. But what is “normal” at a company which long ago was nicknamed “Cheap Channel” by employees?
Also, after references to the ill-fated “Less is More” campaign to pack more spots into less time had pretty much faded away for a few months, CCU management has again been touting LIM as a plus and CC Radio CEO John Hogan last week announced plans to tweak LIM limits, but continue the controversial program.