CLEAR CHANNEL'S NEXT ACT, REDUCING DEBT, COULD DRAG OUT Sarah McBride – Wall Street Journal Clear Channel Communications Inc. shareholders on Tuesday are expected finally to approve one of the year's most contentious deals: the radio titan's $19.35 billion privatization.
Now, the question is whether Clear Channel, as a closely held company, can successfully battle the tough conditions that have challenged the industry in recent years.
The Clear Channel vote has been delayed four times since the original date in March, and the price has changed twice since the original $37.60 a share. The current offer to shareholders from Bain Capital LLC and Thomas H. Lee Partners LP is $39.20 a share.
But if getting the deal through has been tough, building more value at the company may be tougher. The radio industry is suffering from lagging advertising revenue and competition from iPods and satellite radio, among other forces.
Already, the new owners have run into delays with one of their first key tasks, selling off lower-revenue-generating stations in smaller markets. Unloading those assets is key to paying down the debt the company is taking on to privatize. In a worst-case scenario, failure to do so could delay Clear Channel's return to public markets.
"It's tough to go public again at anywhere more than seven times leverage," says David Bank, an analyst at RBC Capital Markets, referring to debt as a multiple of earnings before interest, taxes, depreciation and amortization. He thinks the company's new private holders initially hoped to go back to public markets within two or three years. In current conditions, "the new owners have to be prepared to own the company for as long as five to six years," he says. Bain Capital and Lee declined to comment.
As a largely closely held company, Clear Channel will still have to make quarterly and annual filings with the Securities and Exchange Commission, in part because of "stub equity" stock -- a small portion of stock in the new company reserved for former New York Stock Exchange shareholders -- that will be quoted on the Over-the-Counter Bulletin Board. But the company won't be in the public eye as much as when its stock traded on the NYSE.
Its hope is that the lower profile will free it to try new things without facing as much scrutiny. For example, it could increase or change the advertising inventory it gives to Google Inc. to sell, which currently represents less than 5% of the company's spots. That would be a controversial move in radio, where many executives fear Google will undercut rates.
The company could also more easily make game-changing moves outside radio. Many industry analysts expect it to sell its outdoor assets outside the U.S.; billboard titan J.C. Decaux SA has already expressed interest. Inside the U.S., it could try new strategies for raising revenue from outdoor, perhaps by selling outdoor advertising space through Google.
To a large extent, Clear Channel has already reshaped itself, even before the votes come in. It is selling off its television stations and smaller-market radio stations, while its former concert business is approaching its second anniversary as a separate entity.
"They're a different company," says Victor Miller, an analyst at Bear Stearns Cos. The paring down of operations should leave management free to concentrate on large-market radio stations and outdoor ads, he says, ideally finding more efficiencies in the way those two businesses are run. |