Clear Channel Agrees to Be Bought for $19 Billion, People Say
By Dana Cimilluca and Don Jeffrey
Nov. 16 (Bloomberg) -- Clear Channel Communications Inc., the largest U.S. radio broadcaster, agreed to be bought by a group of private equity firms in a leveraged buyout that values the company at about $19 billion, according to people briefed on the decision.
Thomas H. Lee Partners LP and Bain Capital LLC will buy the San Antonio-based company for $37.60 a share, said the people, who declined to be named because the deal hasn't been announced. The buyers will also take on about $8 billion of Clear Channel's debt.
Clear Channel put itself up for sale last month after asset sales and share buybacks failed to boost the stock price. The company lost more than 60 percent of its market value since 2000, as radio advertising sales stagnated and listeners migrated to the Internet, satellite radio and iPods. The buyers are betting they can slice costs and stem the slide.
``The anticipation is that market right now is undervaluing these radio assets and that they will be more valuable three years out,'' Dave Novosel, an analyst with the independent bond research company Gimme Credit, said before the deal was announced.
Clear Channel shares have fallen 13 percent in the past three years. The stock rose 1 cent to $34.12 yesterday in New York Stock Exchange composite trading, giving it a market value of almost $17 billion.
Clear Channel spokeswoman Michele Clarke declined to comment, as did Matt Benson, a spokesman for Thomas H. Lee. Alex Stanton, a spokesman for Bain, wasn't immediately available to comment.
End of Control
The sale marks the end of Mays family control over the company founded by Lowry Mays in 1972 with his friend Red McCombs. The two men started the company with one radio station and took it public in 1984. After the Telecommunications Act in 1996 allowed operators to have more than two FM stations in a market, Clear Channel went on a buying spree, bringing its station total to 1,150 from 43 in 1995.
Mays's son, Chief Executive Officer Mark Mays, has since sold 10 percent of the company's outdoor-advertising unit, Clear Channel Outdoor Holdings Inc., to the public, in 2005, and spun off its concert division, now Live Nation Inc., in an effort to boost the share price.
In Charge
The deal may leave current executives in charge of the company, including Mark Mays and his brother Randall Mays, 41, who is chief financial officer. Mark, Randall and Lowry Mays own about 7 percent of the shares.
The executives have severance agreements that would have paid them each more than $14 million and granted them options for 1 million shares of stock each if they had been removed from their positions as a result of a buyout.
Clear Channel's third-quarter profit rose 8.2 percent on higher advertising sales from its radio stations. Profit from continuing operations climbed to $185.9 million, or 38 cents a share, from $171.8 million, or 32 cents, a year earlier. Sales increased to $1.79 billion from $1.68 billion.
By selling the company to buyout firms, the Mays family followed a trend among media companies. Univision Communications Inc., a Los Angeles-based television and radio broadcaster, in June agreed to sell itself to a group of firms for $12.3 billion. Tribune Co. is also considering a sale.
Private equity firms are on a record run of purchases. After raising $170 billion so far this year, buyout companies have spent $425 billion on acquisitions.
Goldman Sachs Group Inc. advised the company on a potential sale. Lazard Ltd. advised the special committee of the board that considered the bids. The Wall Street Journal reported Nov. 14 that the three Mays executives who are directors did not participate in the vote on the buyout. The company declined to comment on the report.
Buyers Before
The firms competing for Clear Channel have been buyers of media companies before.
Providence Equity, based in Providence, Rhode Island, Boston-based Thomas H. Lee Partners and Fort Worth, Texas-based Texas Pacific collaborated on the acquisition of Univision. Texas Pacific had been part of the Providence consortium bidding for Clear Channel before withdrawing sometime before the deadline for offers, people briefed on that decision said.
Thomas Lee, Bain and Providence bought Warner Music Group, the fourth largest record company in the world, from Time Warner Inc. in 2004 for $2.6 billion and took it public last year. The firms own more than 62 percent of the shares.
Boston-based Bain, Thomas H. Lee and New York-based Blackstone teamed up a year ago with Cumulus Media Inc. to buy Susquehanna Pfaltzgraff Co.'s radio unit for $1.2 billion.
Clear Channel will likely lose its investment-grade credit rating because of the amount of debt needed to fund the purchase. The firms will raise the money in the company's name.
``That type of debt will lead to a very low credit rating for the company,'' said Novosel. ``Bondholders will be hurt.''
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