The almost never-ending Clear Channel Communications Inc. (NYSE: CCU) buyout may finally clear. Numerous reports talk about a settlement was reached this weekend between the banks and the buyers. The New York Times has a full report, while the WSJ also has data on its reporting too.
A year ago, Bain Capital and Thomas H. Lee Partners agreed to buy the largest U.S. radio broadcaster for $39.50 per share but the deal delayed after the six banks failed to provided promised financing. The New York trials between the banks and the buyers were set to begin this morning and the judge postponed the trial until Tuesday, largely thought to allow more time to complete a settlement. The new terms for the buyout reduced the price to $36.00 per share, according to someone familiar with the settlement. The six banks include Morgan Stanley, Citigroup, Deutsche, Credit Suisse, Royal Bank of Scotland, and Wachovia.
Clear Channel shares jumped on the news over 10% to $33.20. The 52-week range is $25.90 to $38.58.
Morgan Stanley (NYSE: MS) looks like they are getting busy on the private equity side, while others are not.
The investment banking, brokerage, and private equity firm plans to launch a private equity unit in India May 1, using funds from its Asia-specific private equity fund for $1.5 billion that closed last year. Reutershas reported that the unit will be managed by Aluri Srinivasa Rao. Previously, he worked at ICICI Venture of ICICI Bank, India's No. 2 lender. Morgan Stanley already has an investment bank and an asset management firm in operation in India, and the private equity growth in India is a response to India's rapid economic growth and opportunities. The report also noted that The State Bank of India reportedly is in talks with multiple foreign firms to start private equity funds in India.
Morgan Stanley's real estate fund, Special Situations Fund III, completed its third offering in a report by MarketWatch raising $2.5 billion. Most funding came from foreign investors. The completion of this fund brings the total Special Situation funding to $5.9 billion.
Raising "funds" isn't necessarily the same as entering deals, but generally the latter follows suit for a portion of the funds.
The firms are filing suit against against Citigroup, Morgan Stanley, Credit Suisse, The Royal Bank of Scotland, Deutsche Bank and Wachovia.
Some of the allegations are that banks inserted poison provisions, pretext and misdirection, and even a re-cut of the deal as they faced $2.65 billion in losses (that figure according to WSJ).
This one may be a done deal for sure now. When buyers and sellers have to start suing lenders, it is not all that frequent that those providing the leverage get forced into it.
But on the flip side, those banks should have to pay severe business penalties via a break-up fee for backing away.
When operations like Morgan Stanley (NYSE: MS), Lehman Brothers (NYSE: LEH), and Goldman Sachs (NYSE: GS) reported earnings, it was obvious that they had been hurt by being forced to mark down assets in private equity deals. Some had losses in their hedge funds or from the subprime mortgage meltdown. But, the hope remained that global M&A markets would help drive earnings going forward.
It looks like that was a pipe dream. According to a survey by Dealogic covered in the Financial Times, M&A activity dropped 42% from Q2 to Q3 of this year. That deal activity may not come back. One Morgan banker told the paper: "If there is no recession, strategic acquirers will be active across sectors, and mid-sized private equity deals will get financed."
That's a big "if." Part of the problem is private equity. Those deals fell 68% during the third quarter. And that business is not likely to recover soon, especially if credit markets remain volatile. These deals are only a modest amount of deal flow. That means that there could also be a drop-off in normal company-to-company M&A.
What the information means to investors in the big financial firms is that there may still be more downside on these stocks, and the downside could be considerable. At $62, Lehman's shares are significantly down from their 52-week high. But the low for the same period is $49. It has been there once, and it could go back again.
Yesterday, Morgan Stanley (NYSE: MS) made its fifth investment in a hedge fund (during a period of five months). With lucrative fees, such vehicles are hard to resist. Also, hedge funds can be a value-add offerings for high net-worth clients.
Well, today there was yet another deal in hedge fund land. And it's a big one: Lehman Brothers (NYSE: LEH) has snagged 20% of D.E. Shaw & Co.
With $29 billion in assets, it's the fourth largest hedge fund in the world. Keep in mind that Lehman has less than $10 billion in alternative investments.
Something else to consider: Why is D.E. Shaw selling out? Might it think that there are some problems ahead? It's getting tougher to manage lots of capital?
It's impossible to tell. But, in light of the staggering valuation of Fortress Investments (NYSE: FIG) -- a hedge fund that recently went public -- D.E. Shaw probably got a good price for its equity.
Tom Taulli is the author of various books, including the Complete M&A Handbook and the EDGAR-Online Guide to Decoding Financial Statements.
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