SAN ANTONIO – The $19.5 billion purchase of Clear Channel Communications Inc. (NYSE: CCU), parent of local radio stations WHJY-FM, WHJJ-FM, WSNE-FM and WHJJ-AM, by two private equity firms appears to be on the verge of falling through.
The merger agreement, dated Nov. 16, 2006, calls for Clear Channel to be acquired by CC Media Holdings Inc., a unit of Bain Capital LLC and Thomas H. Lee Partners LP.
But at a meeting yesterday, the equity firms told Clear Channel they wouldn’t be able to close because they had lost their bank financing, Bloomberg News said. Bank representatives did not attend the session, at which the deal was to have been completed.
“We want to do this deal,” Bain Capital and THL Partners said in a statement yesterday. “We are ready to close, have funded the equity portion of the purchase consideration, maintain our enthusiasm for the investment and are fully prepared to fulfill our contractual obligations.”
Clear Channel yesterday announced it had filed suit against the banks backing the deal – Citigroup Inc., Deutsche Bank, Morgan Stanley, Credit Suisse, The Royal Bank of Scotland and Wachovia – alleging “tortious interference” with the transaction. The lawsuit, filed Wednesday in Texas state court, accuses the lenders of “refusing to execute necessary documents in an overt effort to ‘run out the clock’ and cause [their] merger agreement to collapse” and “false reasons to refuse to proceed with the transaction – all in an effort to deprive Plaintiffs’ of their vested contractual rights under the Merger Agreement, which Defendants know must close by June 12, 2008.”
The banks stand to lose at least $2.7 million if the deal goes through, because loan prices have fallen since they inked their financing agreement last April, Bloomberg said.
But “the financial risk to the banks in this suit dwarfs any risk they think they have in funding the debt,” Clear Channel CEO Mark Mays said in a Wednesday statement. “The behavior of these banks is irresponsible, unprofessional and unjustified. The defendants have made clear that they are determined, by any means possible, to destroy the merger and thus avoid their obligation to fund, as they are required legally to do.”
A temporary restraining order issued Wednesday night by John D. Gabriel, presiding judge of Bexar County [Texas] District Court, declares that the banks must not “interfere with or thwart consummation of the Merger Agreement,” Clear Channel said in a statement yesterday.
“He found in favor of Clear Channel’s claim that irreparable harm would result if the banks were not immediately enjoined from tortiously interfering with the merger Agreement,” the company said. “Accordingly, Judge Gabriel ordered that the banks, among other things, must not ‘interfere with or thwart consummation of the Merger Agreement’ by 1) refusing to fund the merger transaction, 2) insisting on terms that are inconsistent with the Commitment Letter, or 3) refusing to act in good faith in the drafting of definitive loan documents.
“We are pleased that the banks and the purchasers will now be able to move quickly to complete the loan documents and fund the merger,” Clear Channel said.
In a filing today with the U.S. Securities and Exchange Commission, however, Clear Channel said it could not estimate a closing date. The media and entertainment company previously had said the deal was expected to close by the end of March.
The SEC filing “was necessary because we’re coming near the end of the period targeted for closure,” Fred Moran, an analyst with Stanford Group in Boca Raton, Fla., told Bloomberg News. But, he added, “all of this is public negotiation.”
San Antonio-based Clear Channel Communications Inc. (NYSE: CCU) is a global media and entertainment company whose properties include local radio stations WHJY-FM, WHJJ-FM, WSNE-FM and WHJJ-AM. Additional information is available at www.clearchannel.com.
