Is Clear Channel Collapse Tied To Sirius And XM Merger
One can not help but wonder. The day after the Department of Justice gives the green light to the merger of Sirius and XM, Bain Capital and Clear Channel part ways. According to the press, the deal collapsed because the parties could not come to financing terms. However, could it be possible that Bain, the buyer, was stalling the process all along to see the outcome of the merger of Sirius and XM?
Would a merged satellite radio company have an impact on the value of Clear Channel in the eyes of Bain Capital? Perhaps it would. While neither Bain, nor Clear Channel would ever admit that this is the case, the timing of the issue, and statements of market insiders that Bain no longer wanted the deal have to leave people scratching their heads.
One thing is certain. The audio entertainment landscape is no longer dominated by the Clear Channels and CBS’s of the world. Satellite, wireless, and many other players are now gaining market share. Granted, the theory that Bain backed out of the Clear Channel deal because of the Sirius/XM merger is pure speculation, but the timing is curious if nothing else.
Clear Channel has taken a virtual beating in after hours trading.
Position – Long Sirius, Long XM, No Position Clear Channel, No Position CBS
Thomas H. Lee and Bain Capital Partners LLC are partnering with Clear Channel to create an LBO — Leveraged Buy Out — of the shareholders. Lee and Bain are private equity firms, they are not banks. They have an agreement with Clear Channel and cannot backout at this point.
The problem is with the banks that are bankrolling the LBO. There are 6 banks involved: Citigroup Inc., Morgan Stanley, Deutsche Bank AG, Credit Suisse Group, Royal Bank of Scotland Group and Wachovia Corp.
Reportedly, the rumor is that Citigroup is trying to back out of the deal altogether — which has thrown the whole agreement into dispute. The problem for CITI, is that if there was an agreement already in place — then backing out or substantially changing the terms of the deal will open themselves up to a lawsuit filed by Lee, Bain and Clear Channel.
As of 7pm tonight, Lee and Bain are still committed to the deal with Clear Channel — and will fulfill their end of the deal… it is the bank(s) that have the problem.
IMHO, this has more to do with the current economic problems facing financial banking — and little to no impact from XM and Sirius. Clear Channel is valued at nearly $25 billion — and had FCF of nearly $1.3 billion in 2007. Sirius and XM are not having the kind of impact on Clear Channel as one would think.
Regardless, I do not think that CCU’s problem stems from the DOJ closing their investigation yesterday.
homer985….
It is pure speculation. The deal was announced long ago, and approved a while ago. While it would never be stated, the borrowers deal could be contigent upon getting “acceptable” financing.
If the deal begins to look sour, a buyer could simply find a way that the financing is not acceptable.
I simply find it very curious that CCU has traded well below the buyout price all along when the deal was already approved by regulators. There seems to have been a stall for a while now on this.
We may never know all of the ins and outs of this one. I have been watching it for a while, and felt that the delay was perhaps more than what was being reported. i simply found it ironic that a day after the DOJ announces a satellite radio merger approval that this deal falls apart. Perhaps it is not Bain with the cold feet, but the banks….The timing is still curious.
Tyler, the CCU delay has NOTHING to do with XM/Sirius. The XM/Sirius deal was announced ages ago and any competitive analysis that the CCU buyers performed would have assumed XM/Sirius would be a viable competitor.
In case you haven’t noticed, there is a credit crunch going on, and the CCU deal delays come down to financing and the prices paid….disclosure: Long CCU
John…
Yes, the deal was announced long ago. The competitive analysis would have been done. The question would be how that analysis turned out. In other words did they feel that the merger would gain approval from regulators.
There can be little doubt that there will be a change in the competitive landscape to a certain extent.
The credit crunch is an issue, but deals are happening in many venues even with that crunch. The point is that even with regulator approval, CCU was trading well below the $39 per share that the deal represented.
If at one point the deal was worth $39, and now it is not, one has to ask why this is the case. What dynamic in this situation would make Bain, or lenders have second thoughts?
There are a lot of players involved, but clearly there is some reason that some of these players stepped away. Likely it had more to do with the valuation than the credit crunch.
As I mentioned — the slow down was not on the Bain or THL end… it is with the banks. This story apparently broke 3 hours ago while I was out, this is from my Inside Radio Alert Email:
“Bain, THL Partners sue lenders.
The private equity firms have filed a lawsuit in Texas State Court against the lenders backing their $19.5 billion buyout of Clear Channel, demanding they finance the deal as agreed to last Summer. In a joint statement, the firms say “We regret the banks have left us no choice but to notify them that they are in breach of their obligations under their financing commitments. We continue to believe our investment in Clear Channel will be rewarding for our investors over the long term” adding “We want to do this deal.” Clear Channel has joined Bain and THL Partners as a plaintiff in the complaint.”
All indications that I am hearing on my end is that CITI wants out of the group — and that is what this is all about.
John, I see you’re long CCU — I feel for you. I rolled out of my CCU 401k several years… into a very successful run with XM, I might add.
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Thanks Homer.
I just wrote a piece about this news