• by Erik Sass  @eriksass1, May 27, 2008

One of the largest leveraged buyouts in history came a step closer to completion last Friday with the news that the six-bank consortium has fully funded the $17.9 billion acquisition of Clear Channel Communications by Thomas H. Lee Partners and Bain Capital Partners.

The cash for the deal has been placed in an escrow account, where it will remain until the deal is complete. The sale price of $36 per share still must be approved by Clear Channel shareholders at a special meeting that has yet to be scheduled.

The completion of funding for the deal represents progress from just a few weeks ago, when it looked like it might be delayed or even derailed by a drawn-out legal battle. In March, Clear Channel and its private-equity buyers sued the banks in New York and Texas, accusing them of trying to block the deal with last-minute provisions that violated earlier agreements. The trials were just getting underway in mid-May when news of a last-minute deal saved both sides a courtroom drama.

The settlement would substantially lessen the burden of financial risk on the consortium of lenders, which includes Citigroup, Deutsche Bank, Morgan Stanley, Credit Suisse, Royal Bank of Scotland and Wachovia.

When the consortium agreed to lend the private-equity firms almost $20 billion for the buyout in May 2007, the global credit crunch was just beginning to unfold. Since then, the six-member consortium got cold feet about the high price of the Clear Channel buyout.

Mark Mays, Clear Channel's CEO, asserted that "cash on the barrel head ... is an enormous win for our shareholders," but it's unclear whether they'll agree to the new price. The private-equity firms originally offered $37.60 per share when the deal was first announced in November 2006--a bid rejected by shareholders as too low.

Seven months of negotiation raised the price about 4% to $39.20, by which time economic malaise was beginning to set in. The new, lower offer must be especially galling, considering that some shareholders bought the stock at almost $100 per share in the years before 2001.

If they accept the new offer, Clear Channel shareholders also have the option of exchanging their current shares for shares of the new, privately owned company, called CC Media Holdings. Up to 30% of the shares may be exchanged.

There are encouraging signs: One major institutional shareholder, Highfields Capital Management, is believed to have agreed to the new price of $36 per share.