| |||||||||||
| |||||||||||
Private Capital Posts sponsored by:
Who knew? Thomas H. Lee Partners LP and Bain Capital LLC's buyout of San Antonio radio and advertising company Clear Channel Communications Inc., with all the back-and-forth among banks, sponsors and the company, involving litigation, hurt feelings, sleepless nights and public excoriation, was actually, well, therapeutic. In other words, no hard feelings. "In the end, it's all business," says one source close to the deal. "It's nothing personal. And you got to know your customer." Whether that feeling is universal is hard to tell. The prospect of strained relationships remains possible, despite the agreement reached May 13 to end litigation in New York and Texas and allow the sponsors to buy the company at $36 per share, a $1.6 billion price cut from the original $25 billion enterprise value, or $39.20 per share. Getting there was no easy task. The source says battle lines between banks and sponsors hardened as the case moved toward litigation, chiefly because so many people were involved and the deal dynamics were so complex. Many of the parties, on both bank and sponsor sides, were unable, or unwilling, to pick up hints that the talks didn't have to proceed as contentiously as they did and that compromise was possible. "You also had in-house counsel, frankly, who didn't appreciate the nuance," the source says. "Had there been better communication, we may never have ended up where we did. But it didn't happen that way." What did happen was that early meetings were marked by distrust on all sides, including within the banking syndicate balking at funding the deal at the original terms in light of struggling credit markets and the prospects of severe losses. "Everybody was paranoid as hell about intention and messaging," the source says. A low point: when the idea of arbitration surfaced. "You would have exited that meeting thinking that there was less than a 5% chance of a deal," the source says. Clear Channel CEO Mark Mays and CFO and president Randall Mays reportedly called Morgan Stanley CEO John Mack, which prompted clandestine meetings with sponsors about a week before the agreement to forge a "balanced deal" around which the sides could coalesce. Morgan was part of the lending group. Highfields Capital Management LP, a 7.7% Clear Channel shareholder, was brought in to "grease in the wheels." Highfields was a party to 2007 talks that led to the first amended buyout. Perhaps the most important point to take away from the resolution of the fighting, the source says, is that in situations as complex as Clear Channel, relationship managers such as M&A bankers and workout specialists have to be involved. "This isn't your standard deal, where guys lend money and close at the end of the day." As to who finally broke the logjam by proposing the new price, no one's talking, at least not yet. "You'll never hear anyone say who brought it up," the source says, but adds that once the idea of a lower price had been broached, few wanted to return to talking about the original transaction. The $39.20 a share deal was just not going to get funded, another source says. "Everyone was looking for a way to get the deal closed." Developments in Texas seem to have facilitated that attitude shift. In March, when negotiations for a credit agreement were in disarray, the sponsors sued lenders in New York seeking performance of the debt commitment. The company and a sponsor entity also sued in Texas, claiming interference with their merger agreement. The battles in both states heated up over several exhausting days of settlement talks. The New York trial then began, and the banks pushed forward in Texas District Court on a motion to cap damages at $500 million, rather than the potential billions in tort damages. But movement at the Texas Supreme Court nudged talks along, a source familiar with the litigation says. On May 13, as revised deal talks continued, the Texas Supreme Court set May 16 for oral arguments on the banks' effort to overrule lower state courts on a dismissal of the Texas litigation. The court had previously requested that the Texas governor appoint judges to replace two recused members of the court. This meant the banks may have had a majority or near majority on the Texas dismissal, the source says. Setting oral argument on an expedited schedule, which was rare, required the assent of five justices, so Clear Channel and the sponsors had to face the possibility that they'd lose in Texas. This third, and likely last, deal revision sets the offer at $36 per share with an option to take equity in the new company up to a 30% cap. Highfields backs the deal and will take $400 million of new equity. Abrams Capital LLC and the Mays family, which owns roughly 6%, are each expected to take a further $100 million in equity. Other shareholders could be left with up to $1 per share of new equity. The initial deal offered $37.60 but was opposed by Highfields, FMR Corp. and other shareholders and was raised last spring to $39.20 with a similar equity option. Under the second deal, the Mays familye_SEmDfather Lowry Mays is chairman of the Clear Channel boarde_SEmDagreed to take only $37.60. In the third version, all shareholders receive the same payment. Under the new deal, the equity commitment is $3.6 billion, of which Bain and THL Partners will provide $3 billion, subject to possible reduction from the equity rollover. This is down from $3.9 billion in equity. The banks will commit about $19.4 billion in debt, down from $21.1 billion. The renegotiation led to an increase of 40 basis points in the interest rate, to LIBOR plus 3.65 percentage points. There is no LIBOR floor, and the remaining aspects of the debt commitment are substantially the same as what the sponsors sought with the May 2007 agreement. The deal will require a new shareholder vote, which should occur by the end of September. With the amendment, the buyers also waive a right to call a material adverse change. Did one side win? All parties claim everyone made out, which may be part of the therapy. Shareholders did finally get a deal. The banks are funding the deal on better terms and in an improving credit environment. And the sponsors certainly walked away with a better deal. One source close to the transaction argues that, relatively speaking, sponsors came out on top. "There's no question that less debt helps the banks," says one source. "But the biggest beneficiaries, no question, are the sponsors." Another source views the outcome as a balanced deal at the price of a harrowing process. At one point, he says, the prevailing attitude was "How can you do business with people who treat you this way?" Will lines of communication now be more open between the various parties? He insists they will be. Well, they can't get much worse. - Scott Stuart and Vipal Monga CategoriesPrivate capital video
Categories
Blog roll
Archives
| |||||||||||
|
|
|
|
|
