Clear Channel Communications (NYSE: CCU) shareholders are hearing a little static on the rumor airwaves and fleeing towards the nearest exit. Shares plummeted today after private equity firms and banks backing the $19 billion privatization of the nation's largest radio broadcaster failed to resolve their differences over final financing terms. Shareholders now have almost no confidence in the deal, which was slated to take place at $39.20. Instead, many analysts are now predicting shares to fall into the $20s.
The banks financing the deal were unable to create a credit agreement that satisfied all sides of the transaction. In particular, banks are concerned that if they lend the $22 billion needed to fund the deal, they would need to immediately write down the value of the loans as soon as the deal closes and book the losses. Since such debt has been typically marked down by 15%, this would equate to a $2.7 billion loss the moment the deal closes.
Those involved insisted that there was still a chance that the deal could be salvaged, but the consensus remains that the deal looks unlikely to consummate. The bright side is that Clear Channel could then sue the private equity firms for breach of contract if the deal falls apart since it was not contingent on securing financing. This would help recoup some money, but do very little in the long run.
Clear Channel's business has also significantly deteriorated since the deal was first struck in November 2006. Bad news has been steadily rolling in since the buyout price was raised in the first quarter of 2007. Growth in its radio operations began to slow and then shrink as the firm's downward spiral became clear. Unfortunately for the buyers, the deal was already approved by shareholders so nothing could be done. Now, this burden may be shifted back to the shareholders.
In the end, a failed Clear Channel buyout would be the latest casualty in a series of high-profile busts since the credit market began to deteriorate. The banks and private equity firms at this point are likely still in the negotiations only to protect themselves from litigation by saying they put forth a noble effort. However, the potential losses from being sued for breach of contract still give shareholders some hope that a deal could take place. If not, shareholders could easily see their stock back in the $20s.
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