Clear Channel To Shareholders: Less May Be More

Clear Channel Communications is taking its "less is more" strategy from Madison Avenue to Wall Street. The nation's biggest radio broadcaster is planning a leveraged buy-out that would take the company out of the hands of public shareholders and make it the biggest privately held broadcast media company. The move is the latest machination by a traditional media company to leverage its underlying value.

"Current price suggests investors already anticipating LBO [leveraged buyout]. In our view, the 10% increase in share price since September 6th...suggests that investors have already begun to price in the possibility that CCU will do an LBO...." Laraine Mancini, the lead radio broadcasting analyst at Merrill Lynch, in a report circulated to investors on Wednesday.

Private-equity firm Kohlberg Kravis Roberts--which recently led a successful effort to acquire the Dutch research and publications conglomerate VNU--is reportedly in discussions with the largest-shareholding Mays family, which launched the company in 1972.



Although it owns an out-of-home advertising business, a live entertainment unit and 41 TV stations, Clear Channel's primary source of income is its 1,182 radio stations. Radio has fought an increasingly steep battle in recent years for the aural entertainment dollar. A multitude of digital competitors--iPods and other MP3 players, Internet and satellite radio--have taken a formidable chunk out of the wavelength's dominance, and radio ad sales have been impacted.

As the digital competitors have risen over the past three years, Clear Channel's stock has fallen, with a drop in value from a high of more than $45 in early 2004 to an August 2006 low of $27.17. The value has since risen, to a close yesterday at just over $32--with a market capitalization of $16.1 billion.

The Merrill Lynch report says the most attractive reason for taking the company private would be to break it up, particularly for the separate value of its TV and radio stations.

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