May 14, 2008: 3:54 PM EDT
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Clear Channel deal: Better late than never

Private equity firms and banks have finally agreed on buyout terms for the radio company. The deal isn't as good as it was a year ago but it's better than nothing.

By John Simons, writer

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Shares of Clear Channel sunk earlier this year on fears that its deal to go private would collapse.

Fortune -- Clear Channel and its prospective private equity buyers finally reached an agreement with their banks to finance the deal Wednesday. Now, all that stands in the way is the approval of the radio conglomerate's shareholders.

Too bad they're now faced with a cheaper offer that they have little choice but to take.

The private equity duo of Bain Capital and Thomas H. Lee Partners first agreed to take the nation's largest radio operator private in November 2006 for $18.7 billion, or $37.60.

Last May, the deal was revised so that shareholders would receive $39.20 per share, or $19.5 billion.

But due to a weakening economy, the buyers cut the price: Clear Channel shareholders will now receive just $17.9 billion, or $36.00 per share.

The Clear Channel (CCU, Fortune 500) sale began to unravel in March amidst a slowdown in radio advertising. The group of banks who had promised more than a year ago to finance the deal rebuffed.

So Bain Capital Partners and Thomas H. Lee Partners filed suit in New York and Texas, to force the six financiers, which included Citigroup and Morgan Stanley, to fund the deal as they promised.

Still, chances for salvaging the transaction appeared bleak.

Over the past few months, several other companies that had agreed to be bought out by private equity firms, most notably 3Com (COMS) and Sallie Mae (SLM, Fortune 500), had seen their deals scuttled since the credit markets began to tighten last August.

But this week, the buyers, Clear Channel and the banks?under threat of looming courtroom proceedings?put the deal back together. As part of the revised deal, two-thirds of Clear Channel's voting shares must approve it.

And despite the lower price, James Boyle, an analyst with CL King & Associates believes Clear Channel shareholders have few options but to agree to the acquisition.

"As Clear Channel shareholders prepare over the next several weeks to vote, they are likely to see continued weakness in the radio sector," noted Boyle in a report to clients on Wednesday.

Indeed, the radio industry has experienced four consecutive quarters of declining revenue growth. And Boyle predicts that it's only going to get worse for radio companies, which means shareholders don't have much argument for a higher price.

In addition, Clear Channel's largest investor, Highfields Capital Management, has already endorsed the new terms. So other shareholders are expected to fall in line. Highfields owns 7.7% of Clear Channel's common stock.

The timing of Clear Channel's shareholder vote isn't clear. After a Securities & Exchange Commission review, Clear Channel will mail a new proxy statement and prospectus to shareholders.

A special meeting of Clear Channel shareholders will be held 45 days from the date of the mailing. The company said it expects the deal to close by the end of the year.

Frederick Moran, an analyst with the Stanford Group, says shareholders should be simply happy that there is a deal. Moran and other analysts note that if the deal fell through, the company's shares would have dipped into the mid-$20s.

"For shareholders to walk away with $36 per share should be considered a win," Moran said.  To top of page

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