Lee, Bain, Clear Channel Sue Banks To Force Sale; Hire Billion-Dollar Lawyer
March 26, 2008 at 4:25 PM (PT)
In the wake of yesterday's stunning news of the possible demise of the CLEAR CHANNEL deal (NET NEWS 3/25), private equity firms THOMAS H. LEE PARTNERS and BAIN CAPITAL PARTNERS filed complaints in the Supreme Court of the State of NEW YORK and the TEXAS State Court against CITIGROUP, MORGAN STANLEY, CREDIT SUISSE, THE ROYAL BANK OF SCOTLAND, DEUTSCHE BANK and WACHOVIA to live up to their agreements to finanacially float the sale. CLEAR CHANNEL itself has joined the private equity sponsors as a plaintiff in the TEXAS complaint.
The financial risk to the banks in this suit dwarfs any risk they think they have in funding the debt. The behavior of these banks is irresponsible, unprofessional and unjustified.
Settle Or Go To Court ... ASAP
The lawsuit demands that the banks pay $26 billion in damages for "tortious interference" and that it either be paid or resolved in court before the merger agreement expires on JUNE 12th. Money quotes from the lawsuit:
CLEAR CHANNEL COMMUNICATIONS and CC MEDIA HOLDINGS, INC. have entered into a $26 billion definitive Agreement And Plan Of Merger. As a result of the Merger Agreement, which must close no later than JUNE 12th, 2008, Plaintiff CC MEDIA will become the owner of CLEAR CHANNEL and CLEAR CHANNEL’s shareholders will receive $19.5 billion.
An order setting an expedited discovery schedule and establishing an expedited trial setting of MAY 12th, 2008, so as to ensure that Plaintiffs may try their case to a jury before their Merger Agreement expires.
Read the entire lawsuit here.
Clear Channel Hires A Billion-Dollar Legal Gun
Make no mistake about it: CLEAR CHANNEL will be playing the hardest of hard ball in court, as it has retained JOE JAMAIL for the TEXAS suit. He won the landmark Penzoil vs. Texaco case in 1985, which was the largest business tort award ever. JAMAIL won a $10.53 billion judgement for PENNZOIL, which TEXACO later settled for $3 billion -- earning him $1 billion for his efforts.
All told, JAMAIL has won over $12 billion in jury verdict claims and over $13 billion in other verdicts and settlements.
The Banks: Stuck Between Billion-Dollar Lawsuits
The reasons for the bank's hesitation to sign off on the current terms of the deal are obvious. As FORBES notes, with CLEAR CHANNEL stock trading over $10 less than the buyout price, the banks would be forced to lend at a cost that's far above CLEAR CHANNEL's current market value -- a very risky proposition in a shaky economy. Failure to make good on this lending commitment could lead to lawsuits. How much of a hit would the banks take by agreeing to the deal under the current terms? According to BLOOMBERG, at least $2.7 billion.
Speaking for the banks, CITIGROUP spokeswoman DANIELLE ROMERO-APSILOS said, "The bank group presented the sponsors with credit agreements fully consistent and compliant with the commitment letter ... The bank group has been and remains prepared to honor the obligations as set forth in that letter. We believe the suits are without merit and will contest them vigorously."
Read the BLOOMBERG report here.
Talking The Talk....
BAIN CAPITAL and THL PARTNERS issued the following joint statement:
"We are disappointed and dismayed that the banks have chosen not to fund the transaction under the terms of the binding commitments they entered into almost a year ago. It seems clear that lenders' remorse set in when credit markets worsened. Now they are trying to walk away from their commitment letter which clearly states that they bear all the risk that conditions in the debt markets might change. The banks are attempting to do so by changing the deal in ways no responsible purchaser could ever accept -- replacing an extended, long-term financing package of at least six years that they've been committed to all along with a short-term three-year bridge financing.
"In our long histories, we have only used litigation as a last resort. We regret the banks have left us no choice but to notify them that they are in breach of their obligations under their financing commitments. We continue to believe our investment in CLEAR CHANNEL will be rewarding for our investors over the long term, and remain grateful to the company and its management team for their constructive actions during the process."
Added CLEAR CHANNEL CEO MARK MAYS: "The financial risk to the banks in this suit dwarfs any risk they think they have in funding the debt. The behavior of these banks is irresponsible, unprofessional and unjustified. The Defendants have made clear that they are determined, by any means possible, to destroy the merger and thus avoid their obligation to fund, as they are required legally to do."
In a separate e-mail to CLEAR CHANNEL employees, MAYS added: "CLEAR CHANNEL would not have agreed to this merger if the financing as represented by the banks’ commitment letter wasn't so solid; we believe the banks have an inescapable legal obligation to fund the transaction ... We and the sponsors remain strongly committed to this merger and are exercising all of the options available to us to close this deal. In addition to our lawsuit, the sponsors have separately sued the banks in NEW YORK to force them to fund the merger.
"While the banks may have 'lenders’ remorse', that is not CLEAR CHANNEL’s problem and we will make sure that our employees and shareholders are not the innocent victims of their unlawful conduct."
Consideration Set For CCU Notes Tender Offer
Meanwhile, TUESDAY was the day previously scheduled for CLEAR CHANNEL to set the price for its tender offer for its outstanding 7.65% Senior Notes due 2010 and the AMFM OPERATING CO. 8% Senior Notes due 2008, and the result is that the consent payment for validly tendered CCU notes will be $1,054.13 per $1,000 principal amount, while AMFM notes will be tendered at $1,034.10 per $1,000 principal amount.
As of 5p YESTERDAY, tenders for 98.58% of the CCU notes and 87.47% of the AMFM notes had been received by the company. Payment is presently scheduled for FRIDAY (3/28).
CLEAR CHANNEL shares closed WEDNESDAY at 26.92, down from 32.56, off 5.64 (-17.32%).
Follow CLEAR CHANNEL's stock in after-hours and morning trading ... here.