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.
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.
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.
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.
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.
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.
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.
But then again, doing such a deal is expensive and time-consuming. So why walk away? Maybe try to find a way to get things back on track?
Well, according to a piece in today's Wall Street Journal, the deal may actually get done.
Basically, the main opposition has come from two major shareholders: Fidelity Investments and Highfields Capital Management. They have a fiduciary responsibility to get the best value for their investors, right?
That means bidding things up. And it appears that Clear Channels buyers -- Bain Capital and Thomas H. Lee Partners -- will do just that. How much? The amount is about 20 cents to $39.20 per share.
There is something else: The existing shareholders will get a chance to participate in the private company, up to 30%. So perhaps when you blend things together, the ultimate value is higher than just 20 cents per share.
And with Clear Channel's stock at about $37.79, it does look like the Street is betting that there will indeed be a deal. Tom Taulli is the author of various books, including the Complete M&A Handbook and the EDGAR-Online Guide to Decoding Financial Statements.
CNBC's David Faber is reporting that Bain Capital and Thomas H. Lee Partners are prepared to raise their offer for Clear Channel Communications (NYSE: CCU) to $39 per share, up from the current bid of $37.60. The shares closed yesterday at $36.72, the small discount indicating that many investors expected the private equity groups to sweeten the deal.
It remains to be seen whether the relatively modest increase of less than 4% will be enough to persuade investors to accept the deal. Calpers, which owns 3.3 million shares of the company, has voiced its opposition to the deal. I would be surprised if this $39 offer is the end of it. Based on the level of resistance to the $37.60 offer, I doubt such a small increase is enough to assuage the concerns of investors.
The board at Clear Channel Communications (NYSE:CCU)has been complaining about the 26 billion dollar to take the company private, and now Bain Capital and Thomas H. Lee Partners may be sweetening the deal. In a letter the directors, the suitors offered to let current shareholders retain a small stake in the company after it is taken private.
This process, known as a stub, is a good idea. If the company's board is right in saying that the 26 billion dollar offer isn't generous enough, the company's shareholder can profit from the success of the private company, If it turns out that the 26 billion dollars was too generous, the shareholders won't make any money from the stub. Fidelity Investments and several other significant shareholders had previously said they planned to vote against the deal. Perhaps the prospect of retaining a stake in the private company will change their minds.
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