As Deadline Nears, Confusion Clouds CC Buyout
March 20, 2008 at 3:04 PM (PT)
Confusion surrounded the buyout of CLEAR CHANNEL COMMUNICATIONS yesterday amid escalating tensions between the private-equity companies behind the deal and the banks that have agreed to finance it, reports THE WALL STREET JOURNAL.
As a key deadline approached, it was unclear whether the deal would close, some 16 months after it was announced. These doubts prompted a nearly 9% drop in CLEAR CHANNEL's shares to $32.60, below the $39.20 per share THOMAS H. LEE and BAIN CAPITAL LLC agreed to pay for the company in MAY, suggesting the market is betting the transaction won't close. If the deal isn't completed by the end of a so-called marketing period, which ends next week, CLEAR CHANNEL could turn to the courts to force the private-equity concerns and the banks to finish the deal.
Nobody is saying that we don't want to do the deal.
A CLEAR CHANNEL spokeswoman reiterated that the company expects the deal to close by the end of the first quarter.
People close to three of the five banks funding the deal, which include CITIGROUP INC., ROYAL BANK OF SCOTLAND GROUP PLC, DEUTSCHE BANK AG, CREDIT SUISSE GROUP and MORGAN STANLEY, insisted the syndicate was prepared to go ahead with the deal. They blamed the private-equity companies for delaying the close. People close to the private-equity concerns assert it is the banks that are holding out.
Just When Does The Marketing Period End?
There appears to be confusion on when the marketing period ends. Estimates ranged from next MONDAY to next THURSDAY. The marketing period is intended to give banks time to offer deal-related debt securities to investors. The period extends 25 days from the day the banks have received the necessary information to complete the deal. If the transaction isn't completed by the end of that period, the parties could be in breach of contract.
The banks are prepared to lend as much as $22 billion to fund the deal, $18 billion of it as senior secured loans. Such debt has typically been marked down 15%, meaning the banks could lose $2.7 billion the moment they close the deal.
T.H. LEE and BAIN have been largely silent on the deal in recent weeks, fueling concerns that they might jump ship. At the time they agreed to do the deal, the economy was strong and the outlook for CLEAR CHANNELS' core radio operations much brighter. Since then, the advertising climate has deteriorated.
Nevertheless, one person close to the situation said the private-equity concerns remained committed to seeing the deal through. "Nobody is saying that we don't want to do the deal," the person said. This person added that the marketing-period deadline could be extended and that the deal's success doesn't hinge on reaching a close in the coming days.
The latest speculation is that the CCU deal will close this coming MONDAY (3/24) or most likely TUESDAY (3/25), getting it past the upcoming EASTER holiday weekend.
Bain Drops Buyout Of 3Com
While not directly connected to the CLEAR CHANNEL deal, one of the buyers, BAIN CAPITAL PARTNERS did terminate its proposed $2.2 billion buyout of 3COM CORP. TODAY, after a U.S. government panel said it would take action to prohibit the transaction on national-security grounds.
BAIN said it "made several alternative proposals to 3COM that we believe could have satisfied the concerns raised by" the Committee on Foreign Investment in the UNITED STATES, a federal panel with reviews acquisitions with potential national-security impacts. "We regret that we were unable to agree upon an alternative transaction."