bloggingbuyouts

Clear Channel Communications Inc. (NYSE: CCU) is going on the offensive. Affiliates of Bain Capital and Thomas H. Lee are filing breach of contract suit against the banks in the buyout deal, and Clear Channel itself joined in the complaint.

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.

Clear Channel Communications Inc. (NYSE: CCU) looks like they are just going to have to stay public. Shares closed down over 5% to $32.56 on the day but shares are down over 15% to $27.40 in after-hours trading. The Wall Street Journal has reported that the $19 Billion club-deal with private equity firms Thomas H. Lee and Bain Capital Partners LLC and their bankers is all but dead.

This has been covered here with more than skepticism as the real chances of the merger closing, usually with plenty of email responses claiming all is well.

If this deal does end up getting closed, it may get to apply for the Guinness Book of World Records for the biggest and longest merger in history. This volatility behind this merger is starting to look like a soccer match played by kindergartners on a hockey rink.

Someone please just turn out the lights and call this game a loss or a draw.

Yet again, there are rumors surrounding the proposed $20 billion buyout deal for Clear Channel Communications Inc (NYSE: CCU). Even with the recent moves from the Fed, the credit crunch seems to be in full force. As a result, bankers are not holding back on (re)negotiations.

On CNBC yesterday, Scott M. Sperling gave an interview. He's the co-president of Thomas H. Lee Partners, which is one of the private equity sponsors of the Clear Channel transaction (the other partner is Bain Capital).

His take on the deal? Well, as should be no surprise, he had no comment on the status. However, he is certainly nervous about the financial system. He talked about the problems with the default swap market and even commercial real estate.

Interestingly enough, he thinks the recession could last from 12 to 24 months. At the same time, he believes there will ultimately be some good deals for private equity operators.

Tom Taulli is the author of various books, including The Complete M&A Handbook and The Edgar Online Guide to Decoding Financial Statements. He also operates DealProfiles.com.

Many buyouts have failed over the last six months. That "material change" clause in every deal is frequently as vague as asking someone if they promise not to get mad at you before you tell them the problem. Many of these blown-up mergers have resulted in large break-up fees being paid out by the would be buyer to the intended buyout company. But many private equity firms have been able to get out of these break-up fees.

The truth is that your definition of "a material change" will differ from mine, and mine will differ from others. You can bet that "a material change" differs greatly between the opinions of a buy a seller. Here are some of the deals where break-up fees "ot other damages and penalties" may come up shortly.

3Com Corp. (NASDAQ: COMS) just hinted at this today, as it wants a YES Vote from holders from the Bain-led offer and noted that it has been unable to appease CFIUS review concerns because of Huawei's involvement in the deal.

Developments between Alliance Data Systems (NYSE: ADS) and The Blackstone Group LP (NYSE: BX) are starting to heat back up again.

This pending Clear Channel Communications inc. (NYSE: CCU) has been noted as the longest standing current large club deal that is still in pending deals, but all indications point to the banks wanting to get out of the loans. They might not be able to get out of it. And they might. After this long, it isn't even clear what damages would be eligible if any. Scott Sperling of Thomas H. Lee was just on CNBC shortly to discuss the Clear Channel deal, and to discuss his new $10 billion fund he recently raised. He didn't comment about Clear Channel, but he said it may take another 6 to 12 to 18 months before values and conditions come in line with deal making strategies.

There was a large move of almost 6% today in shares of Clear Channel Communications (NYSE: CCU). There was a note that a trial is being set from yesterday, but the talk out there today was that this was soon going to be a done deal.

The truth is that this one has been like watching a soccer game and is still in the pending stage with a suspiciously wide arbitrage spread. Even after a large move up today and even with a large move from the high $20's in early February, the spread here is still huge in the deal from Bain Capital and Thomas H. Lee Partners LP for $39.20.

It is wide enough that it still should bring more questions than answers. At a $33.68 close, this one has a merger arb-spread of some 16.3 percent. That isn't as high as it has been, but it is still questionable. I have been questioning this along with other failed deals even though this one is still in the "pending" status.

There are two words come to mind here: speculation, or rumors. This one is still a head scratcher. For whatever it's worth, if this closes it may be the last or one of the last giant club deals in private equity buyout land. Every time this one is discussed, the opinions vary wildly.

We have seen more private equity mergers fail in recent months that you might wonder if the private equity sector will ever do any more large deals. No group of stocks looks as bad as the group of the recently failed private equity buyouts.

Some of the losses here may seem excessive compared to what would have been the buyout price, but that is the new private equity M&A world for you. Below you will see how wide these spreads would be if the old mergers magically reappeared, but don't hold your breath.

The freshly failed acquisition of 3Com Corp. (NASDAQ: COMS) by Bain Capital Partners LLC & Huawei was originally $5.30 cash, although the last ditch effort to please the CIFIUS watchdog via a unit sale would have resulted in a lower price. If that magically came back, you'd be looking at an 82% gain.

You can access this full article with more detailed explanations and would-be spreads. Other busted private equity buyouts discussed are as follows:

• The Alliance Data Systems Corp. (NYSE: ADS) buyout from The Blackstone Group, LP (NYSE: BX)
• SLM Corp. (NYSE: SLM), or Sallie Mae, and J.C. Flowers
• United Rentals Inc. (NYSE: URI) buyout from Cerberus

Clear Channel Communications Inc. (NYSE: CCU) from Thomas H. Lee Partners LP and Bain Capital is actually still a pending deal, although that is also addressed because of a wide arb-spread.

Maybe someone can create a Failed Merger ETF. They have an ETF for almost everything else.

Clear Channel Communications (NYSE: CCU) has sued (subscription required) Providence Equity Partners in attempt to complete an agreed-upon deal to sell 56 TV stations to the firm $1.2 billion. Providence says that it is "surprised and disappointed that Clear Channel would suddenly bring this baseless lawsuit."

Interestingly, Providence is arguing that Clear Channel didn't have a right to sue them under the terms of the deal and that therefore it is under no obligation to pay the $46 million break-up fee if the deal falls apart.

Clear Channel also has a deal in place to be acquired in whole by Thomas H. Lee Partners and Bain Capital.

Nothing seems to be going well for Clear Channel as far as its efforts to get previously agreed to buyouts to close. The Lee-Bain deal has been dogged by rumors. At $32.35, Clear Channel shares trade at a substantial discount to the buyout price of $39.20.

Over at Seeking Alpha, Saul Sterman believes the buyout is a done deal. If that's the case, Clear Channel shares are a good deal here, but I wouldn't advise individual investors to speculate on something like this. Leave that game to more in-the-know arbitrageurs.

Moneygram International Inc. (NYSE: MGI) has just announced a financial package that will probably save its future. It entered into a definitive agreement with Thomas H. Lee Partners and Goldman Sachs Group Inc. (NYSE: GS) in a recapitalization of the company.

These investors will contribute roughly $710 million, with a maximum of $775 million, in a formula to be determined after the company sells certain investment portfolio assets as required under the terms of the agreement. It also entered into a pact with Goldman Sachs for financing of up to $500 million in debt and it is expected to obtain an additional $200 million in debt financing prior to the close of the transaction. MoneyGram also expects to have $350 million outstanding or available under its existing credit agreement and will seek the proper amendments and waivers to its current package.

On top of this, it has coordinated a new extended pact with Wal-Mart Stores (NYSE: WMT) to provide payment services and money order services at some 3,500 stores through 2013.

Upon closing the transaction, it is expected that the investors will receive a combination of nonvoting preferred stock with an aggregate liquidation preference equal to approximately $710 million and common equivalent stock representing approximately 19.9% of the currently outstanding shares. The nonvoting preferred stock received at the closing will have an initial interest rate of 20% (up to 22% max) and will have contingent value rights tied to the future value of the common stock.

The convertible voting preferred stock will pay a cash dividend of 10% or may accrue dividends at a rate of 12.5% in lieu of paying in cash. The company expects it is likely that dividends will be accrued and not paid in cash for at least four years. The convertible voting preferred stock will be convertible into shares of common stock of the Company at a price of $5.00 per share, which is expected to give the Investors an initial equity interest of approximately 63%, assuming a $710 million investment.

This is obviously going to change all of the earnings expectations as a result of higher interest, but it also will keep the blood-letting down to a minimum from here.

MoneyGram shares are rallying sharply in pre-market trading. Shares closed at $5.31 yesterday, and shares are up some 21% to $6.45. Its 52-week trading range $3.68 to $30.85.

For those of us who have been following the mega-deals by private equity firms, the acquisition of Clear Channel Communications (NYSE: CCU) has seemingly gone on forever. The acquisition is priced at $39.20 per share in an offer from an investment group led by Thomas H. Lee Partners and Bain Capital Partners.

In October 2007, the stock traded at $38 and it has been pulling back ever since. Upon numerous occasions this deal has been "set in stone" yet the stock still trades. An earlier acquisition offer for $37.60 had to be juiced up. At this point, the $500 million break-up fee may just be a cost of doing business for the private firms equity if they walk; that fee represents merely 15 months of interest from T-Bills on the nearly-$20 billion price tag.

Earlier this month, Michael Rainey commented on this deal over at BloggingStocks as potentially being in trouble. Shares were at $33.94 when he addressed this, and shares are down more than 5% to $29.60 today. Things haven't formally changed since then, but the Alliance Data Systems Corp. (NYSE: ADS) deal implosion yesterday brought merger-arbitrage fears to the forefront yet again.

If the Clear Channel deal were to close at the end of February or early March, this would net a 25% profit for those who play merger-arbitrage. But anyone who engages in this form of trading would tell you that a 25% "arb-spread" is highly suspect and one must be very cautious. The FCC has approved this deal, but any shareholder thinking that a $39.20 buyout today (particularly after the market sell-off and the media company bloodbath) might want to go take a strong shot of reality at happy hour.

It will actually be no surprise if the Mays family is still in charge at the end of the day. No merger should take this long. Next time we see a major club deal for billions of dollars, we might be asking how much of a non-refundable deposit was put up.

Jon Ogg is an editor for 247WallSt.com.

Within the past 12 months, the stock price of MoneyGram International (NYSE: MGI) was nearly $31. Now, the stock price is at a lowly $5.26. In fact, the stock price plunged nearly 50% just today.

The problem? Well, the company is in the process of a bailout, with the help from private equity sponsor, Thomas H. Lee Partners. Basically, MoneyGram binged on mortgage securities and got into a bit of trouble.

Based on reports so far, it looks like Thomas H. Lee will pony up $750 million to $850 million in fresh equity for 60% to 65% of the firm. Yes, that's big-time dilution.

Interestingly, the fuzziness of the deal is primarily the result of the difficulties of unloading the MoneyGram portfolio. And it could be very difficult, as seen with the troubles at Citigroup (NYSE: C) and Merrill Lynch (NYSE: MER).

While MoneyGram is a check cashing firm, it also wanted to find ways to jack up returns on its huge deposits. So why not put some of the cash into exotic mortgage investments?

Yes, it's an expensive lesson.

In fact, several months ago MoneyGram received a $20-per-share buyout offer from Euronet -- and rejected it. Now, it looks like Euronet is back to the table -- with lots of leverage.

Tom Taulli is the author of various books, including The Complete M&A Handbook and The Edgar Online Guide to Decoding Financial Statements. He also operates DealProfiles.com.

In November of 2006, Thomas H. Lee Partners and Bain Capital announced that they were pursuing a deal for Clear Channel Communications (NYSE: CCU). It took a few months to reach an agreement, but in May 2007 buyout terms were reached, and shareholders approved the deal in September. The deal is worth nearly $20 billion, one of the largest buyouts in history.

As of noon today, Clear Channel is trading at $33.94, a significant discount to the buyout price of $39.20. This suggests that there is considerable -- and growing -- skepticism about the deal. Concerns include the weak track record of recent big buyouts, and the uncertain prospects of commercial communications companies like Clear Channel, which face growing competition from internet-based services and MP3 devices.

The Financial Times, via MSN.com, is reporting that while bankers involved in the deal still think it will probably go through, there is some resistance. One banker is quoted as saying, "there are a lot of undercurrents, including the fact that the returns for the sponsors are terrible and the break-up fee isn't huge." The 'not huge' break-up fee is $500 million -- not a small amount for your average music lover, but small enough when compared to massive losses on a $20 billion deal.

The Boston Globe reports that subprime's collapse is spreading its toxic waste to private equity. For example, in 2006, Boston buyout firm Thomas H. Lee Partners bought six businesses for a total of $65 billion. This January, it made just one such purchase, for $5 billion.

As I suggested to MarketBeat last week, subprime's impact on credit markets such as the one financing LBOs was obvious and dramatic. But MarketBeat supplied some compelling statistics to bolster my case. "Data from Dealogic shows how parched the deal landscape was in November. Global buyout activity fell 75% on a year-over-year basis, to $25.8 billion from $102.3 billion at this time last year, while U.S. financial sponsor buyout activity was even more ridiculously curtailed, with $2.35 billion in buyouts, down 97% from the $81.06 billion recorded at this time a year ago."

I appeared 10 months ago on CNBC suggesting that private equity had peaked. Unfortunately our economic leaders, including Fed Chair Ben Bernanke and Treasury Secretary Hank Paulson, were slow to pick this up. They stated last spring that subprime's damage to the economy was contained but they finally changed their tune in October. The credit crunch resulting from subprime's refusal to stay contained has scotched 17 LBO deals worth $96.6 billion so far this year -- almost ten times 2006's $11 billion worth of busted deals.

Either these guys knew what was going on and did nothing or they didn't know. While I certainly don't think private equity needs any government protection, when government is this incompetent, I believe that a new cast of characters is in order.

Peter Cohan is president of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter.

BCE Inc. (NYSE: BCE), Canada's largest telecommunications company, announced on June 30 that it agreed to be acquired by an investment arm of Ontario Teachers Pension, Providence Partners and Madison Dearborn Partners for an announced deal price of $42.75 per share. The deal is expected to close in Q1 of 2008. BCE closed at $39.12. BCE March option implied volatility of 21 is above its 26-week average of 16 according to Track Data, suggesting larger risk.

Clear Channel Communications (NYSE: CCU) closed at $35.30. Thomas H. Lee Partners and Bain Capital are expected to close on their $39.20 cash bid for CCU in early 2008. CCU option implied volatility of 35 is above its 26-week average of 19 according to Track Data, suggesting larger risk.

Daily M&A Update is provided by Stock Specialist Paul Foster of theflyonthewall.com.

Garmin Ltd. (NASDAQ: GRMN), a designer and manufacturer of navigation, communication and information devices, is recently up $4.11 to $107.82 on unconfirmed Microsoft Corp. (NASDAQ: MSFT)takeover chatter. Dow Jones reported American Technology raised its rating on GRMN to Neutral from Sell. GRMN call option volume of 14,448 contracts compares to put volume of 3,027 contracts. GRMN October option implied volatility of 58 is above its 26-week average of 42 according to Track Data, indicating larger price risk.

TJX Companies Inc. (NYSE: TJX), an off-price retailer with 1,530 T.J. Maxx & Marshall stores, is recently up 40 cents to $29.49 on unconfirmed LBO chatter that Thomas H. Lee and Bain will announce a $38 tender offer for TJX. TJX October 30 calls have traded 88 times on transaction volume of 2,764 contracts. TJX October option implied volatility of 38 is above its 26-week average of 28 according to Track Data, suggesting larger risks.

Daily M&A Update is provided by Stock Specialist Paul Foster of theflyonthewall.com.