Clear Channel Accepts $18.7 Billion Takeover Bid

Editor's Note: While many may welcome someone else taking over Clear Channel, we need to look at the new players. Bain Capital was founded by current Massachusetts governor Mitt Romney. Bain Capital and Thomas Lee Partners have participated in past takeovers with the Carlyle Group. There is no evidence that the Carlyle Group is involved in this takeover, but Mitt Romney will now have a nice megaphone for his expected presidential run. - smg

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Clear Channel Accepts $18.7 Billion Takeover Bid
The New York Times

Thursday 16 November 2006

The nation's largest network of radio stations, Clear Channel Communications, agreed Thursday morning to be bought for $18.7 billion, in a deal that may test private equity's seemingly insatiable appetite for media properties. A consortium that includes Thomas H. Lee Partners and Bain Capital won the bidding with a $37.60-a-share offer, beating out a rival consortium of Providence Equity Partners, the Blackstone Group and Kohlberg Kravis Roberts & Company.

The deal would rank as one of the largest media buyouts ever, surpassing the recent takeover of Spanish-language broadcaster Univision Communications, which a private equity consortium bought for $12 billion earlier this year.

In a press release announcing the transaction on Thursday, Clear Channel put a total value of $26.7 billion on the transaction, including $8 billion in assumed debt. The company's board has unanimously approved the proposed transaction and is recommending that shareholders vote in favor of it, Clear Channel said.

L. Lowry Mays, a former investment banker, founded Clear Channel almost unwittingly after acquiring a radio station in San Antonio when a client backed out of the deal. Mr. Mays, 71, who now serves as chairman, handed operational control to his sons, Mark P. Mays and Randall T. Mays, in 2004. The Mays, all of whom are directors, and a close family associate on the board, Billy Joe "Red" McCombs, recused themselves from evaluating the acquisition, leaving it to seven independent directors to pick the winner.

Amid criticism of the auction process, members of the Mays family have agreed to accept less change-of-control compensation that they were originally entitled to receive. Clear Channel said Thursday that three senior executives would change their employment agreements to "significantly reduce payments" in the event of a change of control.

Clear Channel said in a separate statement Thursday that it will sell all of its radio stations outside its top-100 markets, totaling 448 of 1,150 stations, as well as its 42-station television group. Overall, the properties generated less than 10 percent of Clear Channel's revenue last year, and all the properties are located in small- to mid-sized markets across the nation, the company said.

In addition to its radio stations, which include Z100 in New York and KIIS-FM in Los Angeles, Clear Channel owns a substantial number of billboards and other outdoor advertising. The company generated $6.6 billion in sales in 2005.

Clear Channel's broad reach could raise regulatory concerns, however. Thomas H. Lee Partners is part of the buyout consortium that owns Univision, so the Clear Channel deal may be the first in which regulators will have to consider private equity owners as established players in some media markets.

Thomas H. Lee Partners and Bain had also been considered to be potential bidders for the Tribune Company, which publishes The Chicago Tribune and The Los Angeles Times and runs television stations, so the acquisition of Clear Channel may dampen their interest.

"When you are as close to the ownership ceilings in so many markets in so many ways as Clear Channel is, it doesn't take much in terms of a media-savvy or media-involved buyer to start tripping over some of the ceilings," said Andrew D. Lipman, a Washington-based partner at the law firm Bingham McCutchen.

In large cities, media companies cannot own more than eight radio stations; the caps are lower in cities with fewer stations. Federal rules also limit cross ownerships between TV stations, newspapers and radio outlets in the same markets.

Lawyers who specialize in the media industry note that Clear Channel is already close to those limits in many big markets such as Dallas, Chicago and Miami.

The recent surge in media-related deal activity comes as the regulatory landscape, which was already in limbo, may be about to shift.

In 2003, the Federal Communications Commission relaxed media ownership limits that would have allowed for greater consolidation in the industry. But an appeals court overruled the agency and asked it to redraft its rules. The commission, which is equally divided between Republican and Democratic members right now because of a vacancy, has not revisited the issue, which has previously been fought along party lines, with Republicans in favor of easing ownership caps.

Lawyers at the Department of Justice and the Federal Trade Commission will also review the Clear Channel deal to determine if the new owners, through their various investments, could drive up ad rates on radio and TV airwaves and in local newspapers through their control over the properties.

The analysis will be more complicated than in standard mergers between competitors, because private equity firms are widely expected to argue that they do not exert control over pricing and other operational aspects of the companies in which they invest, said Robert C. Walters, a partner specializing in antitrust law at Vinson & Elkins. "What you have to do is figure out who does or does not have control," he said.

The recent Democratic takeover of Congress could further slow approval of the deal.

Clear Channel and the Mays family, which has contributed generously to President Bush and other Republican candidates, are frequently criticized for standardizing play lists, reducing local news coverage and favoring conservative causes on their radio stations.

Those complaints, coupled with the overarching concerns many lawmakers have about rising media concentration, could lead to drawn-out congressional hearings on the acquisition.

"It's a very conspicuous company, it is a very visible company and certainly it's a goliath in its sector, all of which is going to attract further congressional scrutiny," Mr. Lipman said.

Financing for the deal is being provided by Citigroup, Deutsche Bank, Morgan Stanley, Credit Suisse, Wachovia and Royal Bank of Scotland. All those banks, with the exception of Wachovia, are also providing about a third of the equity for the deal.

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