2 Hub firms to purchase nationwide radio giant

Two big Boston investment firms yesterday agreed to buy the nation's biggest radio broadcaster for an estimated $19 billion as financial pressures and technological change reshape traditional media companies.

Thomas H. Lee Partners LP and Bain Capital Partners LLC were the high bidders for Clear Channel Communications Inc. of San Antonio, Texas, the owner of 1,150 radio stations, including 64 in New England.

The deal, among the biggest of its kind in US history, will take publicly traded Clear Channel into private ownership.

The Bain-Lee group also acquires Clear Channel's billboard advertising affiliate, which accounted for 40 percent of the company's revenue in 2005. Meanwhile, Clear Channel will sell 448 small-market radio stations, including 29 in Maine, Vermont, and New Hampshire, and all of its 42 television stations, none in New England.

The properties to be sold account for less than 10 percent of Clear Channel's revenue, which totaled $6.6 billion in 2005, the company said.

"This is one of the unique media properties out there," said John Connaughton, Bain Capital's managing director. "The assets of Clear Channel are strong and unmatched in their industry leadership."

Clear Channel recently put itself up for sale to satisfy investors after efforts to boost the company's share values failed. The price is down some 60 percent from its peak in early 2000, when it traded at about $90. Yesterday, Clear Channel shares rose $1.24, or 3.6 percent, to close at $35.36. The deal is subject to shareholder and regulatory approval.

Earlier this year, the Knight Ridder newspaper chain sold itself to McClatchy Co., of Sacramento, Calif., and Tribune Co., of Chicago, recently put itself on the block. In each case, share prices were well below their peaks earlier in the decade, as Internet competition battered circulation and advertising revenue.

The New York Times Co., parent of The Boston Globe, has come under similar pressure, prompting a local group led by Jack Welch, the former General Electric Co. chief executive, and Jack Connors, cofounder of the advertising firm Hill Holliday, to say it was weighing a bid to buy the Globe. Meanwhile, one of Times Co.'s biggest shareholders has launched a proxy fight aimed at weakening the control of the Sulzberger family.

Some analysts have questioned whether public ownership of media companies is suited to the technologically driven challenges they face. Wall Street wants strong growth and demands it each quarter, analysts said, but the transition that media companies face to adjust to new competition and a new landscape could take years.

Analysts said more companies could follow Clear Channel into private ownership, which can be more patient during the transition. Media companies, in general, remain attractive to private investors because, while not meeting Wall Street expectations, they still produce healthy profits.

Private-equity firms, such as Bain and Lee, "can take five or six years to create value," said Jim Rutherfurd, executive vice president at Veronis Suhler Stevenson, a New York private equity focused on the media industry. "That gives people a chance to transform a business. But something good still has to happen."

Bain and Lee are among the most active buyout firms in the world, and have raised billions of dollars in recent years from investors seeking higher returns than the stock market has delivered. Last year, for example, they teamed up with Carlyle Group of Washington to buy the parent of Dunkin' Donuts for $2.4 billion. They also are considered possible bidders for Tribune Co., according to published reports.

Bain Capital, cofounded by Mitt Romney in 1984, before he became governor of Massachusetts, has participated in buyouts of major consumer brands such as Toys "R" Us, Burger King, and Domino's Pizza.

Lee, whose namesake founder left the firm in March, participated in this year's $12.3 billion purchase of Univision Communications Inc., the country's largest Spanish-language broadcaster.

Traditional radio has not been as directly challenged by the Internet as newspapers, but other technologies, such as subscriber-based satellite radio and MP3 players, like Apple's iPod, are luring away listeners and advertisers, analysts said. Radio, like broadcast television, makes money by selling advertising at rates based on the number of listeners or viewers.

Although Clear Channel has disappointed Wall Street, the company is still profitable and growing. In the most recent quarter, Clear Channel reported revenues rose about 7 percent from the previous year.

Clear Channel began as a single radio station in San Antonio and grew through acquisitions, becoming a publicly traded company in 1984. When Congress lifted restrictions on the number of radio stations a single company could own in a market, Clear Channel expanded rapidly. Its stock price soared, hitting its peak during the technology-driven stock boom near the turn of the century. Like many other companies, it never saw its stock price recover after the bubble burst.

Bain and Lee outbid another group of private equity investors that included Providence Equity Partners Inc., of Providence.

At $19 billion, few other private equity deals have been as big. The biggest remains the 1988 buyout of RJR Nabisco Inc., for $25.1 billion

Bain and Lee executives said radio has proven to be resilient, continuing to prosper as it has faced challenges from television and the Internet. In recent years, the industry's revenues have grown at a 2 to 3 percent pace, and Clear Channel's at about twice that. In addition, they said, the adoption of new technologies by Clear Channel promises to drive growth. For example, digital billboards, which can run several advertising messages, instead of just one, produce six to 10 times the revenue of traditional billboards.

"We look beyond the cloud that's over the industry," said Scott Sperling, Thomas H. Lee's copresident, "and realize the innovations they've deployed take some time to take off."

Material from Bloomberg News was used in this report. Robert Gavin can be reached at rgavin@globe.com.