By Meena Thiruvengadam
San Antonio Express-News
With a Clear Channel shareholder vote on a $19.35 billion buyout offer from a pair of Boston private equity firms just days away, investors have made their message clear: the price isn't right.
And the San Antonio-based company's board of directors had their own message for would-be buyers Bain Capital Partners and Thomas H. Lee Partners: a sweetened offer of 20 cents more a share or the chance to hold stock in a private Clear Channel isn't enough to make a difference.
But it's unclear whether the majority of shareholders have had the chance to reach that conclusion themselves.
Clear Channel's board announced late Thursday it had decided not to put to a vote Bain and Lee's new offer of $39.20 a share and a chance to hang on to 30 percent of the acquired company's shares, saying significant stakeholders have said they want more than $39 and aren't interested in the option of holding on to part of a private company.
"The drumbeat is loud enough that the board realizes its fiduciary duty is to accept something much higher than $39.20," said David Joyce, an analyst with Miller Tabak & Co. LLC.
Technically, Bain and Lee didn't raise their overall bid for Clear Channel, instead lowering the amount that would be paid to the founding Mays family and increasing the shareholder payout.
Clear Channel founder L. Lowry Mays and sons Mark Mays, the company's chief executive, and Randall Mays, chief financial officer and president, would have been paid only $37.60 a share in the new offer, with the difference being used to finance the 20-cent-a-share increase to shareholders.
Submitting the new bid to shareholders also would have required Clear Channel to delay a twice-postponed shareholder vote yet again.
But the offer of shares in a private Clear Channel may have been the best way to resolve nearly six months of wrangling over the company's original $18.7 billion, $37.60-a-share, sale price.
"What more do they expect?" asked Colin Blaydon, director of the Center for Private Equity and Entrepreneurship at Dartmouth College. "If there's not another offer, it puts the management team in the position of trying to restructure the business to get the same returns as private equity investors. That's going to be a challenging task for them." Stub equity, or the option of holding on to a piece of a private company after a leveraged buyout, is the classic way to bridge the pricing argument, Blaydon said. "If you think the price is too low and don't want to be cashed out, you stay in," he said.
But stub equity doesn't offer the same benefits as traditional stocks. It's not as liquid and can't be can't be traded on a public stock exchange. It would, however, give investors a chance at cashing in on private equity profits.
In an era reminiscent of the buyout boom of the 1980s, "there is all of this concern about whether management teams and their boards truly are serving the interests of shareholders," Blaydon said.
At a $37.60-a-share price, proxy advisor Glass Lewis & Co. estimated Bain and Lee would earn a 22 percent internal rate of return on their Clear Channel investment. Including debt, the total value of the original deal was $26.7 billion.
According to data from transaction tracker Dealogic, Clear Channel shareholders would have earned a premium of 10.2 percent over Clear Channel's closing price the day before the company announced it was for sale.
Sources familiar with the situation say Bain and Lee's latest bid comes after negotiations with major shareholders opposed to both the original offer and a revised $19.35 billion, $39-a-share offer made last month.
Fidelity Management & Research and Highfields Capital Management, which combined hold about 15 percent of Clear Channel's shares, had indicated they would vote against both offers.
However, the New York Times reported Friday that Highfields, which holds 5 percent of Clear Channel's shares, had agreed to vote for Bain and Lee's most recent proposal. Larry Larsen, a spokesman for Boston-based Highfields, declined to comment.
Spokesmen for Bain, Lee and Clear Channel declined to comment beyond a news release issued after the market closed Thursday.
Influential proxy advisors Egan-Jones and Institutional Shareholder Services both had suggested shareholders reject that offer. Under Texas law, Clear Channel would have needed two-thirds of its shareholders to vote for the buyout.
Still, a vote on the $39-a-share offer is scheduled for Tuesday.
But with the outcome already foretold, Miller Tabak analyst Joyce said Clear Channel "needs to refocus on their operations now." Clear Channel shares traded at nearly triple their normal volume Friday and closed up 40 cents at $36.35.
