Lee-Bain team will buy Clear Channel

SACRAMENTO -- Clear Channel Communications Inc.'s directors accepted a revised $19.5 billion buyout offer from two private equity firms after two big shareholders indicated support for the bid.

The offer from Thomas H. Lee Partners LP and Bain Capital LLC, both of Boston, for $39.20 a share, 20 cents higher than a previously rejected bid, was unanimously approved by Clear Channel's board, the San Antonio-based company said yesterday.

The agreement with Clear Channel's biggest shareholders resolves a six-month conflict over the fate of the largest US radio broadcaster and its founding Mays family. Fidelity Investments and Highfields Capital Management, both of Boston, owners of 14 percent of the shares, supported the new bid after outside shareholders were given an option to keep equity in the company.

"It's a fair offer," David Bank, an analyst with RBC Capital Markets in New York, said. Bank rates Clear Channel shares "outperform" and doesn't own them.

Under the latest bid, current investors can opt to receive as much as 30 percent of the equity in the acquired company, worth about $1.2 billion, Clear Channel said. That part of the bid is known as the stub. No current shareholder can get more than 9.9 percent of the acquired company's stock in the transaction.

"I think it's the stub that's going to do it," Bank said. "It's a great way to lock in profit and have some potential upside in the company."

Directors of Clear Channel had rejected the latest offer, which includes an option to get stock in the acquired firm, then reconsidered at the urging of some large shareholders. The two biggest outside investors, Fidelity and Highfields, are likely to support the new offer, people with direct knowledge of the negotiations said yesterday. Both had opposed the earlier $39 bid from Bain Capital and Lee.

"It's a good value, so we are in support of it," said Brad Pacheco, a spokesman for the California Public Employees' Retirement System. Calpers owned about 3.27 million shares as of the end of March, according to Bloomberg data.

The perceived risk of owning Clear Channel debt fell, reflecting speculation shareholders will agree to a buyout that includes some equity and less debt, according to traders who bet on corporate creditworthiness in the credit-default swaps market. In leveraged buyouts, debt to finance the acquisition is often added to the target company's books.

Credit-default swaps based on $10 million of the company's bonds, fell $1,200 to $276,000 in London, according to prices compiled by CMA Datavision. An increase in the price of a five-year contract indicates deterioration in the perception of credit quality; a decline signals the opposite.

The firm postponed a May 22 shareholder meeting to vote on the bid, although the annual meeting will still take place then.

The latest offer limits fees that may be paid to Lee and Bain, Clear Channel said, without being more specific. The offer also stipulates that the company will have at least two independent directors.

Started in 1972 by Lowry Mays and B.J. "Red" McCombs, Clear Channel expanded as US broadcast ownership rules relaxed. Besides radio stations, it acquired theaters and other live performance venues and advertising billboards, in the process becoming a lightning rod for critics including the AFL-CIO who say the firm has homogenized music broadcasts nationwide, diminished the diversity of musical entertainment, and used its cultural clout to advance a conservative political agenda.