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Clear Channel buys SFX
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February 29, 2000: 6:29 a.m. ET
Radio broadcaster to buy concert promoter for $3.3 billion in stock
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NEW YORK (CNNfn) - Clear Channel Communications Inc., the No. 2 U.S. radio broadcaster, agreed Tuesday to buy leading concert promoter SFX Entertainment Inc. for $3.3 billion in stock.
The deal, which also includes the assumption of $1.1 billion in SFX debt, creates an entertainment powerhouse with assets ranging from radio stations to billboards to Broadway shows. Company officials said the deal also gives Clear Channel significant cross-promotional opportunities, particularly in the music industry, in some of the nation's biggest markets.
Under the deal, SFX (SFX: Research, Estimates) class A holders will receive 0.6 of a Clear Channel share for each share tendered. Based on Monday's Clear Channel closing price of 75-3/16, that puts the value of the class A shares at $45.1125, a 19 percent premium from SFX's Monday close of 38.
Company officials hope to complete the deal early in the third quarter.
Analysts caught off guard
Analysts were clearly caught off guard by the deal, and not just because SFX was most recently rumored to be in merger talks with CBS Corp. (CBS: Research, Estimates) -- a rumor the company subsequently denied.
Jessica Rief Cohen, an analyst with Merrill Lynch, called the deal puzzling, noting that while the companies would be able to generate some marketing synergies, the deal was out of context for Clear Channel, which has targeted its acquisition strategy at more high growth ventures.
"It's surprising to say the least," Cohen said. "There are some cross-promotional opportunities there, but it's not the kind of high-growth business that Clear Channel has been getting into."
Investors seemed equally as wary. Clear Channel lost 3-9/16 to 71-5/8 shortly after the market opened Tuesday, while SFX jumped 3-1/2 to 41-1/2.
Creating radio/promotion synergies
Clear Channel (CCU: Research, Estimates) operates 867 radio stations and 19 television stations in the United States, and has equity stakes in 240 stations in other countries. It also operates more than 55,000 outdoor advertising displays.
The San Antonio-based company is poised to become the nation's top owner of radio stations following last October's proposed $23.5 billion acquisition of market leader AMFM (AFM: Research, Estimates). Its billboard holdings also rank it as one of the nation's largest outdoor advertising firms.
SFX, the world's largest diversified promoter, producer and presenter of live entertainment events, operates 120 entertainment venues in more than 60 percent of the top 50 U.S. markets. Last year, the New York-based company promoted and/or produced more than 7,000 music concerts and 13,300 theatrical shows. The company also represents more than 650 professional athletes.
Company officials noted that, including pending acquisitions, Clear Channel will own and operate at least one radio station or outdoor advertising property in virtually every market where SFX currently owns an entertainment venue, creating valuable cross-marketing opportunities.
"This transaction allows Clear Channel, through SFX, to gain immediate leadership in the highly attractive live entertainment segment, while taking advantage of the natural relationship between radio and live music events," said Lowry Mays, chairman and chief executive of Clear Channel, said in a statement.
Mays added that the acquisition created "an exceptional platform" for Clear Channel to pursue Internet and music initiatives.
SFX narrows loss
Separately, SFX announced that it had a loss for 1999 of $57.9 million, or $1.06 per share, excluding one-time items, a narrowing of its loss compared with the previous year of $65.9 million, or $1.83 per share.
Including a one-time cost for the early extinguishments of debt, the company had a loss for 1999 of $60.4 million, or $1.10 per share.
A strong surge in its theatrical and music businesses helped SFX post a 23 percent gain in pro-forma revenues, which closed the year at $2.07 billion, up from $1.68 billion last year. Theatrical revenues climbed 29 percent for the year while music sales jumped 23 percent. 
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SFX Entertainment
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