STATIC INTERFERENCE

Confirming what had been thought possible for months, Clear Channel Communications Inc. said March 28 its $25 billion LBO might not happen at all. The confirmation came via a regulatory filing in which the media company noted a meeting March 27, which went unattended by the banks financing the deal, Clear Channel and its would-be buyers THL Partners Bain agreed that all closing conditions had been met.

Clear Channel was given a temporary restraining order March 26 against the banks that restricted their ability to interfere with the deal's close. The deal's fate highlights how dicey risk arbitrage can be given the current credit markets, The Deal's Scott Stuart noted March 28:

Even if deals should get done -- as Clear Channel should have -- no one is confident until the deal closes because of the complexity of the agreements underpinning them and the potential for outs.

The deal gained approval from the Justice Department in mid-February. Two months earlier, Clear Channel pushed back its expected date of completion from the end of 2007 to the first quarter of 2008, but said it was "confident that the necessary regulatory conditions will ultimately be satisfied." The announcement came days after the $1.2 billion sale of Clear Channel's television group to Providence Equity Partners Inc. won FCC approval Nov. 29, despite warnings earlier in November that the deal could fall apart. After a separate fight, that deal closed March 14. The Deal's Chris Nolter noted:

Providence originally agreed to pay $1.2 billion in April, with financing from Wachovia Corp., Goldman, Sachs & Co. and UBS. In its statement [March 14], the PE buyer noted that the final price amounts to a reduction of $212.5 million, or 17%, from the initial deal. Total leverage was cut by $110 million.

Clear Channel disclosed in November that Providence was reconsidering and in January sued the private equity firm in Delaware Court of Chancery, arguing that Providence should abide by the deal terms. Last month, the buyer and seller agreed to reduce the price to $1.1 billion.

This prompted Wachovia to file suit in North Carolina, claiming it was not bound to finance a revised deal. Providence countersued, saying the bank should honor its commitment. While Clear Channel closed the deal, the company would not say whether the three banks are still funding the transaction.

As The Deal's Ron Orol pointed out Dec.3:

Since the buyout was announced, Providence appears to have lost some enthusiasm, and Clear Channel confirmed in November they buyers may call off the transaction despite a $45 million breakup fee.

Meanwhile, the radio deal was still pending. Company officials had hoped to win approval for the TV station sale ahead of clearance for its larger buyout to avoid interfering with FCC radio-television overlap rules, Orol wrote in October.

Shareholders approved the radio buyout Sept. 25, after two bumps in the offer price and a consequent, unhurried regulatory review. All that stands in the way is formal regulatory approval. The Federal Communications Commission and the radio and outdoor advertising company's buyers have agreed to certain terms, sources told Orol, related to their other media holdings. The review of the radio assets, sources told Nolter, wasn't rushed, because shareholder approval wasn't certain. Opposition evaporated, and in addition to 448 planned divestitures, the FCC identified 30 others stations Clear Channel will likely have to sell, given FCC ownership restrictions.

The shareholder vote came nearly four months after Clear Channel struck a new merger agreement with its buyout consortium hoping the latest one would pass shareholder muster, and it gained the favor of one vocal shareholder: Highfields Capital Management LP said May 30 it would vote its 5% stake in favor of the deal. The news came weeks after the broadcaster spurned a revised offer from its proposed acquirers and subsequently delayed a shareholder vote on the deal, saying it would revisit discussions.

Trying to push through the take-private, Clear Channel's founding Mays family, Bain and TH Lee bumped up their offer from $37.60 a share to $39 apiece. Days later, citing positive developments that outweighed the increase, Institutional Shareholder Services Inc. said May 1 that it still recommended shareholders vote against the deal. Days later still, Clear Channel fielded an increase from $39 a share to $39.20 a share, or nearly $27.4 billion, though at the time said it wouldn't take it to shareholders for a vote.

Details of the revised offer were scant and one shareholder suggested investors would value the chance to hold stock in the company, nudging Clear Channel to offer more details about the revised offer. At the time of the bump, the San Antonio-based broadcaster said the increase was insufficient to delay a vote, but investors cried out, the company said in a May 7 statement. The vote is was set for May 22, only to be rescheduled again.

The mid-April increase to $39 a share, up from a $37.60 a share bid agreed to in November, came on the eve of a meeting in which shareholders were expected to vote down the buyout.

AS GOOD AS IT GETS?

As The Deal's Christine Idzelis noted, a Merrill Lynch & Co. research report "opined that 'a majority of dissenting investors would have preferred a $40-plus offer,' but it said the new offer 'may be sufficient to entice arbs and short-term investors to vote for the deal.' Merrill calculated, however, that the buyers could afford to pay up to $41 a share and still earn a 20% return."

Clear Channel agreed to go private in November through a $26.7 billion buyout, which includes the Mays family, and was met with shareholder opposition from mutual fund manager Fidelity Management & Research Co. and Boston's Highfields Capital Management. The price includes the assumption of nearly $8 billion in debt. The vote was originally set for March 21, but it was pushed back to April 19 and later to May 8 as the list of opponents grew and proxy advisers weighed in by advising shareholders to vote against it.

• Highfields capped a month of vocal opposition March 22, expressing a belief that Clear Channel had the ability to deliver long-term shareholder value exceeding $37.60 a share.
• The news came weeks after Glass, Lewis & Co. LLC urged shareholders to vote down the buyout.

• Sell local radio stations; sell local TV stations 
  • Clear Channel first announced the sale of its television group to Providence Equity Partners for $1.2 billion April 20 and the sale of 76 stations in 17 markets to several bidders in January. As part of the standing deal, Clear Channel unveiled plans to sell 448 outlets in smaller markets due to the influence of the FCC's ownership restrictions.
  • The company said May 2 that to date, it has signed commitments to sell 362 radio stations in 72 markets for nearly $820 million.
• Sell international outdoor assets  
• Repay CCO's intercompany note with CCU  
• Spin out CCO Domestic  
• Create a pure-play domestic radio company

What remained in question for some time was whether the sweetener would be enough of a boost to placate dissidents. The relatively slim increase indicated different things for different people. One source told The Deal's Scott Stewart the deal stretched the bidders thin, while others contended the increased debt financing indicated the buyers could still pay more.

He pointed out: "It seems that Bain and TH Lee are betting that the number of shares needed to top the 66.6% threshold is relatively small and that the $1.40 bump could persuade some shareholders who may not want bear the risk of a public Clear Channel successfully executing its business plan."

TIME TO CHANGE

Clear Channel announced a "strategic realignment" in April 2005, spun off its live-entertainment unit, spearheaded an initial public offering of its outdoor-advertising division and paid a special dividend to shareholders and a 50% boost in the quarterly dividend, which did little to the stock price and drew further shareholder fire. In August 2006, management turned to Goldman, Sachs & Co. to conduct a strategic review, announced Oct. 25. At the same time, sources told The Deal that Clear Channel was considering filing a formal petition to the FCC seeking to raise the limit  on how many stations one company can own in the largest individual U.S. markets.

Four consortia pounced on the prospect of a takeover, Morgan wrote, and would evolve over time.

• A Blackstone Group LP-Providence Equity Partners Inc. team included -- for two separate stretches but not at the finish -- Kohlberg Kravis Roberts & Co.  
• The second group included Bain, TH Lee and Texas Pacific Group, now TPG, the third leaving after "having difficulty with its participation in the transaction," according to a proxy.  
• Apollo Management LP and Carlyle Group teamed up, until Carlyle opted out.  
• A fourth team included from beginning to end Cerberus Capital Management LP and Oak Hill Capital Management.