Radio giant reaches deal

After a contentious, months-long effort to go private, Clear Channel Communications Inc. appears close to reaching its goal.

Clear Channel announced an agreement to sell the company to its private equity buyers for $19.45 billion, or $27.45 billion including debt. Shareholders would have the option of taking $39.20 a share or stock in the private company.

That option to profit alongside private equity buyers has changed the stance of some shareholders opposed to previous offers from buyers Bain Capital Partners and Thomas H. Lee Partners.

Highfields Capital Management and the California Public Employees' Retirement System are among those in support of the new offer, said a CalPERS spokesman and a source familiar with Highfields' position.

The deal also would cap the transaction fee Clear Channel would have to pay its buyers at $87.5 million and require that at least two independent directors be included on the company's board.

The latest offer, unanimously approved by Clear Channel's board, is the fourth the private equity duo have made for the nation's largest radio broadcaster. Bain and Lee originally proposed acquiring Clear Channel for $18.7 billion, or $37.60 a share, in November. Including the assumption of Clear Channel's debt, that deal was valued at $26.7 billion.

Clear Channel, Bain and Lee declined to comment beyond a news release issued Friday morning.

"The opportunity to play along is probably what got some of the holdouts to finally sit at the table," said David Bank, an analyst with RBC Capital Markets in New York.

Shareholders would have the option of holding up to 30 percent of the corporation's outstanding capital stock — about 30.6 million shares — with an approximate value of about $1.2 billion. No shareholder would be allowed to hold more than 9.9 percent of the company's outstanding capital stock.

"This gives us the opportunity to participate with the private equity firms to get more value," said Clark McKinley, a spokesman for CalPERS. The pension fund owns 3.1 million shares of Clear Channel stock valued at about $118 million.

Several large shareholders including CalPERS, Highfields and Fidelity Management & Research — Clear Channel's largest shareholder with 9.8 percent of shares outstanding — have opposed previous offers, saying they didn't provide adequate shareholder value.

Spokesmen for Fidelity and Highfields declined to comment for this article.

Early this month, preliminary shareholder vote totals showed enough opposition to derail a once-sweetened $39-a-share offer. Under Texas law, at least two-thirds of Clear Channel's shareholders would have to vote for the transaction for it to be completed.

Although Bain and Lee's latest offer is just 20 cents a share higher, it offers shareholders something they rarely get — a chance to share in the riches private equity buyers are expected to reap. And in an era reminiscent of the buyout boom of the 1980s, shareholders increasingly are seeking a piece of those profits.

A recent $7.8 billion deal to buy stereo maker Harman International Industries Inc. gives shareholders the chance to hold up to a 27 percent stake in a private Harman.

"Investors in general are starting to become believers that there is no magic to private equity," Bank said.

Bain and Lee's most recent bid is similar to one Clear Channel's board rejected two weeks ago. That offer would have boosted payments to most shareholders from $39 to $39.20 a share by lowering payments to the company's board to $37.60 a share. It also would have given shareholders the choice between cash or stock in a private Clear Channel.

Intrigued by the stock offer, an arrangement known as "stub equity," shareholders lobbied Clear Channel's board to reconsider its rejection of the bid. The resulting negotiations brought about Bain and Lee's latest offer.

A shareholder vote scheduled for Tuesday on the $39-a-share offer has been canceled, and a vote on the new bid has not yet been announced. But Miller Tabak & Co. analyst David Joyce expects a vote could come late this summer — a longer delay because of the stub-equity component.

This time, he expects the deal will garner enough shareholder support to pull Clear Channel out of the public arena.

"The stock is reflecting that," he said.

Shares of Clear Channel traded at double their normal volume and rose 44 cents to close $38.23 Friday on the New York Stock Exchange.
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