Leveraged Buy-Out, Or Traditional Media Dry-Out: Private Equity Reshapes Media Ownership
Whatever the logic, the pattern became a little bit clearer on Thursday when Clear Channel Communications accepted an $18.7 billion buyout offer from a group of private-equity firms, including Thomas H. Lee Partners LP and Bain Capital Partners LLC, in the largest bid yet by private investors for a media company.
The investor group has said it will pay $37.60 a share for Clear Channel stock--about 10% over the market value. As part of the deal, Clear Channel plans to sell 448 of its 1,150 radio stations, all in markets outside the top 100 in the country. Its 42 television stations are also slated for sale in the deal.
Clear Channel will continue accepting bids until Dec. 7, and today's deal is far from a sure thing. Analysts say Clear Channel's stockholders might reject the deal, holding out for bids to sell off the company's individual components at an even higher premium. However, analysts also note there is much to recommend this deal, including continuity in management by the Mays family and keeping the assets of Clear Channel Radio and Clear Channel Outdoor together, which offer marketing synergies.
The deal could have major ramifications for the ad business, but they won't be clear for some time, according to a group of senior media planning execs and sales reps interviewed Thursday. "Deals this big always take a while to settle out," cautioned Sue Johenning, senior vice president and director of local broadcast for Initiative.
"There's going to be different impacts in different markets, depending on who buys the smaller stations and what kind of changes the new owners might make," she notes. "In terms of how we would plan media or purchase media, there's no impact until this is all settled. For now, it's business as usual."
Likewise, Mary Barnas, executive vice president and director of local broadcast for Carat, said: "I will be watching to see how and if this acquisition changes the way Clear Channel approaches the business."
Maribeth Papuga, senior vice president and director of local broadcasting for MediaVest, was also careful in her assessment. "None of us know the real specifics of the deal." Papuga said it was too soon to speculate about pricing changes, concurring with Johenning.
"Who's going to buy those 400-odd stations?" she asks. "Whoever picks a station up will either keep the format or introduce a new one, and that creates a different value for the station in that market. Is it a competitive format to other formats, or is it not competitive because it's new?"
Johenning and Papuga also both noted that even after divesting itself of 448 stations, Clear Channel Radio remains an industry leader with a portfolio of valuable properties. Papuga summarized: "I don't know that it really diminishes their size if they have 1,200 stations and go down to 800, especially if the stations they're losing are smaller ones." Overall, she concluded, "I don't see it as a negative if Clear Channel can still manage what they have in terms of their network market delivery."
However, other planners were less sanguine.
Karen Agresti, senior vice president and director of broadcast for Hill Holliday, lamented Clear Channel's withdrawal from smaller markets. "I'm sorry they're going to be selling the bottom 448, because the smaller markets really need Clear Channel to use its clout to try to get the industry up to a new standard." Agresti says withdrawal was a setback to the industry's push for "more uniformity and standardization in the industry."
Barnas, however, was more optimistic. "Just because Clear Channel is no longer part of it doesn't mean these smaller stations are going to give up on things like electronic billing and performance accountability. I have faith that we'll continue to make progress."