• by Erik Sass , April 6, 2007

If Clear Channel Communications' planned leveraged buyout by private-equity players H. Lee Partners and Bain Capital Partners fails on April 18, Bear Stearns analyst Victor Miller predicts a sell-off of the company's properties, turning it into a pure-play radio company. Its 400 small-market radio stations and TV station group, already on the block, would be followed by the sale of the international and domestic outdoor companies.

H. Lee Partners and Bain Capital Partners are currently offering a bid of $37.60 per share, representing a roughly 28% premium above the average share price over the last six months--but some investors have rejected it as too low. The deal's prominent opponents include Institutional Shareholder Services, a powerful advisor to large organizations that hold stakes in companies, which advised shareholders to vote against the deal in a note issued in late March.

Miller outlined three possible courses in a conference call detailing a Bear Stearns report titled "2007: the Year of Buyouts?" In the first, the two private-equity companies could boost their bid to a price that would swing ISS and other opponents, which would require them to "come up with $694 million to $1 billion in incremental funds" for a stock price about $40. But it's a distinct possibility that "the buyer might just choose to walk" instead, according to David Freedman, also a Bear Stearns analyst.

If no other bidders come forward, Miller predicted, Clear Channel's management could enact Plan B, selling off the various properties listed above to concentrate on its radio business, raise share prices and produce special dividends for shareholders. According to Miller, such actions could raise the stock price as high as $44 a share.

Miller's view mirrors those of other analysts, including Banc of America's Jonathan Jacoby, who in a recent note wrote that major stakeholders could push the company to pursue other means of increasing share value: "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." Ironically, to some degree, Clear Channel's plan is a victim of the company's success. Shareholders are hesitant to part with a stock that is already outperforming the rest of the radio industry by a wide margin. As Miller noted, with the exception of Clear Channel, all the major radio players have seen their stock dip anywhere from 16.6% to 72.9% since 2005. By contrast, Clear Channel's stock has risen 20.6% in the same period.