Clear Channel retuning

Agrees to largest media buyout ever at $18.7 bil

Clear Channel Communications, the nation's largest operator of radio stations, has agreed to be acquired for $18.7 billion by a pair of private-equity firms and the founding Mays family, the companies said Thursday.

Thomas H. Lee Partners and Bain Capital will pay $37.60 per share for Clear Channel, assuming the company doesn't get a better offer. Clear Channel said it still could negotiate with other potential buyers through Jan. 5, provided that proposals are submitted by Dec. 7.

Thomas H. Lee Partners was part of the consortium that purchased Univision Communications for $12 billion two months ago and is one of several private-equity firms that paid $12.7 billion in May for VNU Group, parent company of The Hollywood Reporter, Billboard, the Nielsen brand of market-research products and other media entities.

While the per-share price represents only a 10% premium to where shares closed Wednesday, Clear Channel said it is a 25% premium to the stock's average price for the 30 trading days ending Oct. 24, the day before executives said that they were exploring strategic alternatives. Investors, presuming the acknowledgment meant that bids for the company could be imminent, quickly drove Clear Channel stock higher as Wall Street analysts guessed that the company might fetch more than $40 per share.

Clear Channel, which last year spun off its live-entertainment business and conducted an initial public offering of 10% of the company's outdoor advertising unit, said Thursday that it also plans to sell 448 of its 1,150 radio stations and its 42-station Television Group. The company said the sale of those assets is not contingent on the buyout agreement.

Merrill Lynch analyst Laraine Mancini said the planned sale shows that the Clear Channel buyers are "attempting to capture the premium private market valuations for broadcast properties that several of (the company's) radio/TV peers have done over the last 12-18 months."

But she also raised concerns about the prices Clear Channel might command for the assets. "Given the large number of properties Clear Channel is offering for sale, we are not convinced the company can achieve the same sale multiples," she said.

Clear Channel also owns show syndicator Premiere Radio Networks, giving it a stable of some of the most popular talk-radio talent in the U.S., including Rush Limbaugh and Dr. Laura Schlessinger.

Traditional radio as an industry has been challenged of late by XM Satellite Radio, Sirius Satellite Radio and the popularity of digital music players, one reason Clear Channel shares had stagnated for four years until getting a boost from recent buyout chatter.

The Walt Disney Co. also is selling much of its radio holdings, and CBS Corp. is shedding many radio stations.

Nevertheless, Mancini raised her price target on Clear Channel shares by $4 to $40, arguing that a rival bid could come in at $41 per share and still produce good returns.

The $18.7 billion private-equity deal for Clear Channel would represent the largest such buyout of a media company in history and the fourth-largest in any industry.

The biggest deal ever for a company to be taken private remains the $25.1 billion purchase of RJR Nabisco in 1988.

The way the Clear Channel acquisition is structured, the two private-equity firms would each own roughly one-third of the company, with the final third going to the Mays family and various banks that are providing financing.

Founder L. Lowry Mays will be chairman emeritus, while son Mark Mays remains CEO and son Randall Mays chief financial officer.

Mark Fratrik, vp at financial and strategic advisory firm BIA Financial Network, said the decision to sell several hundred Clear Channel stations is "an indicator of what might be the optimum level of stations that any one company can effectively manage."

He argued that "many of the largest radio groups fall into the range of owning 70-300 radio stations, so Clear Channel will still be much bigger.

"That level of ownership allows companies to have enough scale to negotiate effectively with suppliers while at the same time staying attuned to their different local market conditions," Fratrik said.

Credit agency Standard & Poor's, meanwhile, cut its debt ratings on Clear Channel to junk status and said it will mull a further downgrade.

"Although the company has not announced specific financing terms of the new capital structure, we would expect a marked increase in leverage, which is likely to result in even further ratings downside potential," S&P credit analyst Michael Altberg said. "Even if the deal does not close, which we believe is a relative low probability at this juncture, Clear Channel has demonstrated an appetite for a higher level of risk."

Georg Szalai in New York contributed to this report.
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