• by Erik Sass , March 9, 2007

In a note released Thursday, Bank of America Securities Analyst Jonathan Jacoby wrote that the proposed deal to take Clear Channel Communications private is likely to fail--due to opposition from large institutional investors. According to Jacoby, these major stakeholders will probably push the company to pursue other means of increasing share value. Thus, the Clear Channel deal appears--ironically--to be a victim of its own success. Shareholders refuse to settle for short-term gains in the belief the company will create even greater value over the long-term.

Under the terms of the proposed buyout by Bain Capital Partners and Thomas H. Lee Partners, private-equity partners, shareholders would receive $37.60 per share--a 28% premium over the average share price over the last 60 days. In a letter to shareholders release on Friday, board reps Alan D. Feld and Perry J. Lewis urged them to approve the board's proposed sale.

Pointing out the premium each shareholder will earn on the sale of stock, the letter emphasized that the auction was "highly competitive" and the decisions of the directors were "disinterested."

Still, the tone of the letter was graphically strident; the bold, all-caps type exclaimed: "WE URGE YOU TO VOTE FOR THE PROPOSED MERGER TODAY!" Moreover, Clear Channel's corporate controllers face additional opposition from skeptical shareholders. According to Jacoby, to close the deal, Lee/Bain would have to offer more than $42 a share--a high price that may strike the risk-averse private-equity companies as untenable.

Rather than sell the company to private equity firms, which would create more value by cost cutting and other reforms, Jacoby believes some of Clear Channel's largest shareholders may be willing to undertake such a program themselves. "Our prior analysis failed to capture what we perceive as a greater willingness on the part of institutional investors to take many of the steps that private-equity consortia do to 'squeeze' value out of companies."

If Jacoby is correct, these institutional investors calculate they can earn more by keeping their stocks and instituting their own overhaul.