Talks on final financing terms for the 26.7 billion bucks going private buyout of Clear Channel have officially broken down. The would-be buyers, Thomas H. Lee Partners and Bain Capital have sued their bankers, as has Clear Channel Communications itself. The lawsuit filed in a Texas state court in San Antonio, where Clear Channel is based, accuses the banks of tortuous interference. The defendants are Citigroup, Morgan Stanley, Credit Suisse, RBS, Wachovia and Deutsche Bank. They’re being sued for damages that CCU and the private equity firms claim far exceed the 26 billion price tag of the failed deal.
Clear Channel CEO Mark Mays lashed out at the lenders for scuttling the deal. “The financial risk to the banks in this suit dwarfs any risk they think they have in funding the debt. The behavior of these banks is irresponsible, unprofessional and unjustified. The Defendants have made clear that they are determined, by any means possible, to destroy the merger and thus avoid their obligation to fund, as they are required legally to do,” Mays said.
Bain Capital and THL Partners insisted they were ready to go to the closing table. “We want to do this deal. We are ready to close, have funded the equity portion of the purchase consideration, maintain our enthusiasm for the investment, and are fully prepared to fulfill our contractual obligations to complete the deal,” they said in a joint statement. The two private equity firms also filed a similar lawsuit against the banks in a New York state court. It charged that the banks “pretended to negotiate the final documentation in good faith,” but actually tried to insert “poison provisions” to kill the deal.
For their part, the banks insist that they have been compliant with their commitment letter and remain prepared to honor their obligations.
Stockholders fled Clear Channel’s stock yesterday amid fears that the buyout deal was collapsing. CCU stock plunged to 26.53 at the opening bell yesterday from the previous close of 32.56 and traded as low as 25.90. At the closing bell, it was off 17.3% for the day at 26.92.
Even as the tense negotiations were going on, Clear Channel made preparations for a closing this Friday and set the consideration to be paid for its bond tenders, based on recent US Treasury yields. Clear Channel said approximately 98.58% of the Clear Channel notes due 2010 had been tendered, some 739.4 million bucks worth, and 87.47% of the notes from its AMFM subsidiary, or 564.1 million. But it now appears unlikely those bondholders will be cashed out anytime soon.
RBR/TVBR observation: This court battle should be familiar territory for one of the banks. Wachovia, has already had a legal fight over providing financing for a big broadcasting deal – coincidentally, the buyout of Clear Channel Television. We understand that the bank decided to fold its hand and make the loan after former LIN Television CEO Gary Chapman prepared a detailed analysis for the other side demonstrating that the deal had not changed in an adverse way for the lender. No doubt similar expert analysis will be sought if the Clear Channel buyout also heads to court. In this case, though, the terms of the deal haven’t changed one whit – just the market conditions. And they have changed a lot.