Clear Channel takeover may hang on proxy decision

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The fate of a $19.5 billion bid to take U.S. radio station operator Clear Channel Communications Inc. private may well hang on a decision by influential proxy advisory service ISS.

ISS, which advises fund managers and pension funds how to vote on various issues, recommended on March 29 that shareholders oppose Thomas H. Lee and Bain Capital's $36.70 a share, or $19 billion bid, tabled in November, arguing that it undervalued the company.

Last week, the bidders raised their offer to $39 and ISS has yet to give any revised opinion on whether shareholders should support the new bid or vote against it on May 8.

"Its definitely important," said John Blackledge, a senior analyst at JP Morgan, of the ISS decision. "If they come out and have a favorable opinion of the raised bid it would probably be a boost for the prospects of the deal to go through. But at the same time it is not definite that it would go through."

A spokeswoman for ISS said Thursday the advisory service was evaluating the situation, adding that they would typically aim to release any opinion 7 to 10 days before a shareholder meeting. She declined to comment further.

On that timetable, it would likely be out by early next week.

"I don't know how much it could help, but I do know it could hurt if ISS rejects the proposal -- because they have to get every vote they can," said David Bank, analyst with RBC Capital Markets.

Bank argued that if ISS's evaluation was unfavorable it would make it highly unlikely the offer could pick up an extra 10% support he estimates could swing the vote.

ISS has played an important role in some major votes in past years, such as a 2004 recommendation that Walt Disney Co. shareholders withhold their votes for then-Chairman

Michael Eisner and its 2002 support for Hewlett-Packard Co.'s merger with Compaq.

In its analysis of the $37.60 bid for Clear Channel, ISS said while it took "some comfort in the seemingly competitive" bid process, it thought the offer price a "very modest premium."

The report detailed the level of previous approaches by a variety of consortia in the run-up to Clear Channel's board accepting the offer. It noted that the first one, from a rival team to T.H. Lee and Bain, was made in September 2006 at $34.50 and rejected by the company.

But ISS argued that "just because a sales process appears to have been well-run, it doesn't necessarily follow the ultimate outcome of that process is the best alternative for shareholders."

The Clear Channel deal faces a particularly difficult hurdle, because under Texas law two-thirds of all the company's shares must approve the transaction, not just two-thirds of votes cast. That means that shareholders who fail to vote are counted as voting against the deal.

Some major institutional shareholders have indicated they are still unsatisfied with the $39 offer and would oppose the deal.

A source close to Fidelity Management & Research Co. said last week the firm would not change previous plans to oppose the deal, while a separate source familiar with the matter said Highfields Capital Management LP would not change its plans to oppose the deal.

But a fund manager at an investment firm that is a top-20 shareholder in Clear Channel told Reuters last week that the increased bid meant the firm now favored the deal. The fund manager said the investment firm, which requested anonymity, had previously been on the fence about which way to vote.

Investors mulling whether to accept the bid will be weighing Clear Channel's long-term stock performance if the offer fails.

Supporters of the deal argue that an uncertain outlook for growth in the radio industry makes it unlikely the shares will gain much, while an opposing view is that a higher price than $39 can be reached by methods such as splitting the company up and paying a special dividend.

Clear Channel's stock closed down 9 cents at $35.80 Thursday.
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