Is '07 year of the radio buyout?

Clear Channel bidders up offer; Cox may be next to go private

A day before a scheduled vote by shareholders of Clear Channel Communications to approve or reject a $37.60-per-share buyout, the bidders upped their offer to $39.

Facing assurances that some of the radio giant's biggest shareholders would vote no, a group led by Thomas H. Lee Partners and Bain Capital Partners increased their offer by 3.7%, and Clear Channel rescheduled its special shareholders meeting for May 8.

The new all-cash bid represents a 33.3% premium to the average closing price of Clear Channel shares over 60 trading days ending Oct. 24, the day before the company said it might consider a sale.

The sale requires a two-thirds affirmative vote, and observers predict it will be close, considering that advisory firm Glass Lewis previously told shareholders their stock was worth $39.71-$41.40 if the company were to be sold.

Bank of America analyst Jonathan Jacoby has said that if Clear Channel isn't taken private, activist shareholders could unlock value in the company to the tune of about $5 per share.

Clear Channel's board, with interested directors recused, unanimously approved the amended agreement and recommended Wednesday that it also be approved by shareholders.

The $39 price tag amounts to about a $19.4 billion offer. Thomas H. Lee Partners is part of a consortium of private-equity groups that own the Nielsen Group, parent company of The Hollywood Reporter.

Clear Channel on the auction block fits in with predictions that 2007 could be "the year of the buyout" for the radio industry, as Bear Stearns analyst Victor Miller said in a recent report.

Miller said radio companies might be ripe for the picking because "one, poor stock performance since Jan. 1, 2005; two, declining implied take-out multiples for radio; three, decreasing company floats; and four, the increased presence of private equity."

Miller recently upgraded Cox Radio Inc. shares to "outperform" with a $16 target price and a possible $18.75 take-out value. He cited the company's "comparatively attractive multiple, relatively well-positioned business, strong balance sheet, conservative acquisition strategy and other developments."

As far as additional radio groups are concerned, they could be tempted to go private as sector stock prices were down 9% since January-February and down 35% on average since Jan. 1, 2005, Miller said in his report.

Stock buybacks also have decreased the number of outstanding shares for many radio firms, plus buyout prices seem to have come down.

Cox Radio shares were down fractionally Wednesday to $14.97. They have traded from $12.60-$17.48 during the past 52 weeks. Clear Channel shares finished down 1.3% at $36.23.

As for other radio stocks, Emmis Communications Corp. was up fractionally to $9.72 and Cumulus Media Inc. was down 3.7% to $9.99.

Cox Radio also received an upgrade this month from Credit Suisse analyst John Klim, who suggested that Cox Enterprises might be more likely to take the radio group private given recent weakness in its stock, among other factors.

Klim upgraded his rating from "sell" to "underperform," also citing valuation, though he maintained his $14 target price.

"The stock's pullback over the past four months has brought Cox Radio's valuation in line with the radio group," he said in his report.

"We do not believe Cox Enterprises Inc. will buy-in the 36% of Cox Radio that it does not already own over the next 12 to 18 months," Klim said. "In our opinion, Cox Radio's valuation is not compelling enough (at least at these levels)."

However, he added that Cox Enterprises' balance sheet "is about to become much healthier with a large cash payment on the way" based on a recent agreement by Cox to sell its 25% stake in Discovery Communications for $1.3 billion in cash, the Travel Channel and Antenna Audio.

Paul Bond reported from Los Angeles. Georg Szalai reported from New York.
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