• by Erik Sass  @eriksass1, July 28, 2008

Two of the largest radio deals in history have been approved, after years of delays. The outcome of tortuous negotiations and public debate, both are major victories for Clear Channel, XM and Sirius.

Last Thursday, shareholders of Clear Channel Communications voted to approve the $17.9 billion sale of the company to two private-equity partners, Bain Capital Partners and Thomas H. Lee Partners. With an overwhelming majority (97%) of shares voting in favor of the sale at $36 per share, the special shareholder meeting put to rest any doubts that the buyout will go through.

There had been plenty of reason to doubt this outcome. First, Clear Channel shareholders rejected the initial price of $37.60 offered by the private-equity partners in November 2006 as too low. Subsequent months of haggling, and a few more rejections, raised the offer price about 4% to $39.20 in May 2007. Shareholders finally approved the deal on these terms in September of last year.

But as the price crept upward, the economy slid downward--and the global credit crunch, combined with falling revenues at radio stations, rattled the six-bank consortium of lenders, which included Citigroup, Credit Suisse, Morgan Stanley, Deutsche Bank, the Royal Bank of Scotland, and Wachovia. Balking at the high price, the banks tried to block the deal with the last-minute insertion of "poison provisions," according to Clear Channel, which sued them for breach of contract and tortious interference.

Thursday's vote to approve had the support of major institutional investors and proxy advisory firms, including Institutional Shareholders Services, Highfields Capital Management, Fidelity Investments and Calpers, the California Public Employees' Retirement System.

Meanwhile, the merger of Sirius and XM Satellite Radio received approval late Friday from the Federal Communications Commission, which has been mulling over the merger's ramifications for over a year. FCC approval was the last hurdle for the merger, which got the green light from the Department of Justice in March.

Kevin Martin, the Republican chairman of the FCC, has received numerous letters (ex parte filings) from members of Congress, companies, radio industry lobbyists, and groups claiming to represent the public interest, arguing both for and against the merger.

Opposition to the merger was led by the National Association of Broadcasters, representing terrestrial radio stations. Other groups presented various conditions they said should be met in order for the merger to be approved.

However, the final decision rested with five members of the FCC, which approved the merger with a party-line vote, pitting Martin and his two Republican colleagues, Robert McDowell and Deborah Taylor Tate, against the two Democratic commissioners, Jonathan Adelstein and Michael Copps. Tate, the last undecided vote, had demanded that the satcasters settle a pending FCC enforcement action for illegal use of repeating stations on the ground; last week, they agreed to pay a $20 million fine, clearing the way for her support.

Adelstein had briefly toyed with the idea of supporting the merger, but ultimately voted against it when the satcasters refused to meet his stringent conditions for approval. Over a month ago, Sirius and XM agreed to more lenient conditions, including leasing 8% of the satellite spectrum (about 25 channels) to minority and public broadcasters, and a three-year price cap.

Adelstein demanded 25% of the spectrum, or about 75 channels, and a six-year price cap. He also said satellite radio manufacturers should be required to include hardware that allows them to pick up HD radio signals, a condition earlier rejected by Sirius CEO Mel Karmazin.