Clear Channel terms reflect tight credit, ad slump

All that helps explain why Clear Channel didn't mind taking a lower price and slightly higher lending rates to settle a dispute with its lenders late Tuesday, clearing the way for the long-delayed buyout deal to proceed.

The final $36 per-share price was 8 percent below the latest offer of $39.20, and even below the original price of $37.60 that major shareholders had opposed as being too low. Clear Channel struck the original deal to be taken private by the buyout firms Bain Capital Partners and Thomas H. Lee Partners in November 2006.

This time, Clear Channel wasn't taking any chances of the financing falling apart, noting in a late-night announcement Tuesday that the company, its two private equity partners and six lending banks had agreed to "fully-negotiated and documented definitive agreements" for financing.

The latest going-private deal had collapsed amid accusations from Clear Channel that the lenders were trying to rejigger the lending terms, making the transaction unviable. Lawsuits were already underway in Texas and New York while the settlement talks proceeded, but are now being dismissed.

This time, the lenders will be depositing into escrow within 10 days all the cash and letters of credit that Clear Channel will need for the deal. Because of the lower share price, the deal is now valued at $17.9 billion, down from $19.5 billion.

Shareholders must still sign off on the new deal, and the company will be filing an updated proxy statement within a few weeks. Two-thirds of shareholders must vote in favor.

Analysts gave the deal a far higher likelihood of passing this time. "Trust in bank underwriters will be replaced by escrowed cash," Leland Westerfeld, media analyst at BMO Capital Markets, wrote in a note to investors.

James B. Boyle, an analyst at C.L. King & Associates, gave the deal a 90 percent likelihood of passing. The deal has already received clearance from antitrust authorities and the Federal Communications Commission, and the company that additional regulatory approvals weren't expected to be needed.

Investors agreed with that sentiment, pushing Clear Channel's shares up 56 cents to $34.86 in afternoon trading, more than $1 below the newly agreed price of $36 and reflecting confidence that the deal will go through.

The lower offer should be easily justifiable to shareholders given the "even more sluggish" radio sector, which has seen 11 straight months of revenue declines, Boyle said in a note to investors.

Plus, Clear Channel and its investors dearly wanted to avoid suffering the fate of Cumulus Media Inc., a fellow radio broadcaster whose stock plunged 24 percent on Monday after its own buyout deal fell apart.

"That is a recent, very brusque reminder to potential holdouts hoping for a slightly higher price what could happen to (Clear Channel's) share price if the deal is derailed," Boyle said. Should Clear Channel's deal have blown up, a similar decline in its own stock would bring it down to $26.10, Boyle noted.

Various parties in the Clear Channel case agreed to make sacrifices in order to assure a solid deal that had a high likelihood of passing. The company agreed to take a lower price, lenders agreed to complete financing agreements and put money in escrow ahead of time, and the buyers agreed to slightly higher lending rates.

Specific lending terms weren't disclosed, but the company said in its filing that additional information about the lending agreements would be filed later with the Securities and Exchange Commission.