Who's buying old media? Big private equity firms. Clear Channel Communications (CCU) said Nov. 16 that it had agreed to a buyout from an investor group that will pay around $26.7 billion, including the assumption or repayment of $8.0 billion of net debt.
The media and entertainment company said the group, led by Thomas H. Lee Partners, L.P. and Bain Capital Partners, LLC, has agreed to pay Clear Channel shareholders $37.60 per share.
The deal represents a premium that's around 25% more than Clear Channel's average closing share price of $29.99 during the 30 trading days ended October 24, 2006, the day before Clear Channel first acknowledged that it was evaluating strategic alternatives. After the news, investors bid up the stock 4.6% to $35.68 per share in early trading on the New York Stock Exchange.
"We are very pleased to announce this transaction which provides substantial value to our shareholders," said Mark P. Mays, the Chief Executive Officer of Clear Channel, in a press release. "We look forward to working with Thomas H. Lee Partners and Bain Capital Partners to continue our business plan to provide exceptional programming to our audiences and value to our advertising partners."
The deal is subject to regulatory and shareholder approval. Clear Channel can solicit competing bids from third parties through Dec. 7.
Clear Channel also announced on Nov. 16 that it's trying to sell 448 radio stations in selected small markets as well as its television broadcasting division. But it doesn't need to do these sales to complete its mammoth merger deal with Thomas H. Lee Partners and Bain Capital Partners.
Lowry Mays was an investment banker when he bought and operated his first radio station in San Antonio, Texas, forming Clear Channel Communications in 1972. Under his leadership and other Mays family members', the company has since grown into more than over 1,100 radio stations, 40 television stations and 870,000 outdoor advertising displays.
Thomas H. Lee Partners and Bain Capital Partners are betting that Clear Channel's growth isn't over yet, either.
"Clear Channel has tremendous long term growth opportunities in both the radio and outdoor businesses and we look forward to partnering with Mark and Randall (Mays) to create value in the years ahead," said Thomas H. Lee co-president Scott Sperling in the press release.
Private equity investors are sensing opportunities throughtout the media business. The Reader's Digest Association (RDA), for example, said on Nov. 16 that an investor group led by Ripplewood Holdings LLC will buy the Pleasantville, N.Y. publisher for $17.00 per share in a transaction valued at $2.4 billion, including assumption of debt. The company publishes the iconic magazine for which it's named and has interests in a host of other media businesses.
Private equity firms are buying old media even as Wall Street analysts downgrade the stocks and hype up Internet moguls like Google instead. Bank of America, for example, on Nov. 15 downgraded the radio and TV broadcasting stocks Citadel Broadcasting (CDL) and Cox Radio (CXR) both to sell from neutral, explaining that the industry's revenue will only increase at an average rate of 1% over the next five years. That's down from a prior estimate of 2 to 3%.
"We remain cautious on the radio group," Bank of America analyst Jonathan Jacoby said in a follow-up research note Nov. 16. "Audience erosion will continue to cap top-line growth over the next decade," he said.