Updating the Clear Channel math


Back when the original deal to take Clear Channel private was put together, the total value – debt and equity – was $26.7 billion. But that’s ancient history and the whole thing has been reworked. By our calculations, the new total is $23.8 billion.

Recent announcements from Clear Channel HQ in San Antonio referred to both the debt and equity portions of the funding for the buyout being put into escrow for a total of $17.9 billion. That is only the cash to buy out current shareholders.

An SEC filing made yesterday said the consortium of six big banks – Citigroup, Deutsche Bank, Morgan Stanley, Credit Suisse, Royal Bank of Scotland and Wachovia – are committed to a secured term loan A of $1.865 billion (minus up to $1 billion drawn under a revolver), a secured term loan B of $10.7 billion, a secured term loan C of $705.6 million (subject to reduction based on certain asset sales), an estimated $80 million under a secured revolver (which can run up to $2 billion) and up to $750 million under a secured delayed draw term loan. In addition, $980 million of new senior unsecured notes and $1.33 billion of senior secured “toggle” notes (the rate varies under the terms of the notes) will be issued to help fund the buyout. That’s about $16 billion in new debt by our count.

Bain Capital, Thomas H. Lee Partners, Highfields Capital Management, Abrams Capital Partners and the Mays family have all escrowed their equity contributions as well, in cash or current Clear Channel stock.
CC Media Holdings, the company created to acquire Clear Channel, will also be acquiring the company’s existing long term debt. As of the end of Q1 that was $5.9416 billion. That debt load has gone down since the original deal was cut, primarily due to Clear Channel selling its TV division and a bunch of radio stations. So, both the debt assumption and the share buyout price have come down.

At the end of Q1 Clear Channel had 496,388,000 fully diluted shares outstanding. Multiply that by $36 and you come up with $17,869,968,000 – that’s the $17.9 billion for the buyout as stated by the company. Add in the debt and the total value of the deal is $23,811,586,000. Still a pretty big deal.

RBR/TVBR observation: After the previous experience, the obvious question now is: “What could go wrong this time?” Quite frankly, the folks in San Antonio seem to have gotten all of their ducks in a row, so it would really have to be something out of left field to screw up the closing this time.

It could not have occurred to anyone back in early 2007 that it would be necessary to have lenders escrow their loan funds and private equity funds escrow their equity contributions to guarantee closing. Well, that’s the reality of the financing markets in 2008, so the whole $17.9 billion is indeed escrowed under terms of the settlement that ended the dueling court battles over the buyout deal.

The big Clear Channel investors who objected to the proposed pricing and drove the offer up to $39.20 last year are no longer so confident of the company’s future value. We’ve heard no objections to the revised price of $36. The shareholders vote still has to take place, but that appears to be just a formality this time.

DOJ and FCC approvals are already in hand. The price change doesn’t matter to them and the FCC will no doubt extend its approval as long as necessary to get this to closing.

Some bizarre lawsuit could pop up to throw a monkey wrench into the works, but we can’t imagine where it would come from. So, it sure looks to us like this deal will go to closing in 2008.