Scott Sperling is the co-president of THL Partners, which has invested in over 100 businesses with an aggregate value in excess of $125 billion. No doubt, it's one of the top private equity firms.
Well, this week, he did a spot on CNBC and talked about some of his key investment themes.
First, Sperling is bullish on media. After all, THL Partners is a financial sponsor of the Clear Channel (NYSE: CCU) buyout.
True, Sperling says that advertising revenues are slowing down across the board, even at dot-coms. Yet, he likes mature media companies since they generate strong cash flows. Plus, Sperling said he has modeled his deals with a "recession case."
Moreover, Sperling thinks there are some long-term growth trends, especially in the Latin media market. To this end, THL Partners owns a piece of Univision.
Sperling is also upbeat about the ethanol space. He thinks the growth prospects remain strong. And, Sperling said that the technology is proven. One of his ethanol investments is Hawkeye Holdings, the fourth largest producer in the US.
Oh, and does he think the US economy is in a recession? He didn't hesitate when he answered "yes."
BCE, Inc. (NYSE: BCE) is one of the large multi-billion dollar pending mergers that is on hold and is caught in the middle of a fight. Its merger has been on the books for nearly a year but its ultimate fate is not yet know. Because of all the speculation in this and with a legal fight currently underway, this one is uncertain.
We have seen leveraged trading in the stock options activity today that threw up a big giant red flag. More than 20,000 options contracts traded today that looks like a straddle play in the June options.
You can read the full story at Volume Spike (VSinvestor.com) to see in-depth options analysis, where we think this stock has to go, and more detailed data on the BCE, Inc. legal fight.
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 Journalhas 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.
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.
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.
Clear Channel recently sued Providence Equity Partners to try to force it to complete the proposed $1.2 billion buyout of its television unit. But the two agreed last week to keep going with the deal, although with a price tag $100 million lower.
Now a new wrinkle: one of the banks financing the deal, Wachovia (NYSE: WB), is trying to back out of the deal. It has sued Providence, claiming that the new deal voids the previous agreement and frees Wachovia from its obligations in the deal. Wachovia committed to provide $450 million of financing for the original $1.2 billion deal.
It's not entirely clear why Wachovia is trying to back out. No doubt the reduced liquidity in the credit markets makes this a much less attractive deal. But as The New York Times speculates, Wachovia may be trying to escape from the much larger $25 billion buyout of Clear Channel itself. However, the tv unit deal is not related contractually to the larger deal, so escaping from one doesn't mean escaping from the other.
One thing is sure, though: buyouts are getting are harder to complete.
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.
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.
As far as public investing and private equity in IPO's, there is more:
SeaCastle Inc. has pulled its IPO due to market conditions. This one was supposed to be a $2.2 Billion company after the IPO, and Fortress Investment Group owns almost the entire company.
We have noted some scared traders worrying about Clear Channel Communications (NYSE: CCU) on whether or not its buyout was coming. Yesterday we saw 32,315 options contracts trade in the April-2008 $30 Call options, which is 3.2 million shares on a fully leveraged basis.
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.
Merger arbs are a key part of the M&A ecosystem. Basically, these are traders who assume the risk of buying shares in M&A targets, hoping to make a profit when the deals close.
Of course, during the boom times, this was a nice profit center for Wall Street.
In fact, according to a piece in the Wall Street Journal [subscription], it looks like merger arbs are thinking in terms of worst-case-scenarios. As a result, the spreads on deals (the difference between the buyout offer and the current stock price) have widened significantly, even for marquee deals.
Unfortunately, if some of these deals crater, we are likely to see real damage. That is, it will likely take quite some time for the private equity marketplace to make a comeback.
The newspaper is stating the obvious. The market already knows the deals are unlikely to close. BCE shares trade at $34, down from at 52-week high of $44.59.
The by-products of these problems are two-fold. The first is that LBO firms have obligations to close some of these deals. That means that break-up fees or lawsuits may be on the way. Boards at these companies may have little choice if their shareholders are billions of dollars underwater.
The other factor is that trust in LBO firms will probably fall to all-time lows with public companies. Whatever happened to the "our word is out bond" stuff?
Douglas A. McIntyre is an editor at 247wallst.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.
Time can be the enemy of buyout deals. It gives the parties more time to think about things -- or get frustrated. Just look at what happened with the Harman International Industries, Inc. (NYSE: HAR) implosion.
But, in the case of the buyout of Clear Channel (NYSE: CCU), the deal somehow appears to be mostly complete (the process took about 10 months). That is, today the company announced that its shareholders approved the transaction. As a result, the company's buyers -- Bain Capital Partners, LLC And Thomas H. Lee Partners, L.P. -- will become the new owners of the radio powerhouse.
In fact, during the buyout process, Clear Channel increased the price tag two times. There was also another interesting feature added along the way; that is, the shareholders have the right to roll over some of their equity into the private entity.
But, ultimately, the key takeaway is that radio has proven to be quite resilient. Despite competition from satellite providers and the Internet, the fact remains that traditional radio continues to be a big part of people's lives -- and more to the point, a nice cash-cow business.
Laureate Education, Inc. (NASDAQ: LAUR) has certainly attracted a long list of top-notch investors, such as KKR, Citigroup, SAC Capital and even the company's CEO, Douglas Becker.
But the deal hasn't been easy -- that is, until the investors, led by Becker, started to boost the bid to take the firm private.
The latest boost was an increase from $60.50 to $62.00 a share (roughly $3.82 billion in all). And that was enough to get the approval of Laureate's board.
As we have seen in other deals -- such as with Clear Channel Communications, Inc. (NYSE: CCU) -- major institutional public shareholders are not potted plants. Instead, they are getting tough on shareholder approvals.
In the case of Laureate, T. Rowe Price was making lots of noise. In fact, the firm even wrote a letter to management and indicated that the offer was "significantly below the true long-term value of the company." According to its analysis, T. Rowe Price projects a stock price of $110 by 2010.
T. Rowe Price is not alone. Another major Laureate shareholder, Select Equity Group, was not pleased with the pricing.
To get the deal done, Laureate only needs to get a majority of the shareholder vote, and that looks likely now. On the news of the new offer, the company's shares increased 2.53% to $61.63.
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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Scott Sperling is the co-president of THL Partners, which has invested in over 100 businesses with an aggregate value in excess of $125 billion. No doubt, it's one of the top private equity firms.
Merger arbs are a key part of the M&A ecosystem. Basically, these are traders who assume the risk of buying shares in M&A targets, hoping to make a profit when the deals close. 
Laureate Education, Inc.
