• by Erik Sass , May 3, 2007

One of the nation's largest proxy advisory firms, Institutional Shareholder Services, is telling its clients to reject the new $19.3 billion private-equity takeover offer for Clear Channel Communications, arguing that the company's valuation is still too low. Coming less than a week before shareholders are scheduled to vote on the deal at the company's annual meeting on May 8, the latest ISS rebuff means the success of the proposed sale is in serious jeopardy.

In their latest bid, private-equity firms Thomas H. Lee Partners and Bain Capital offered $39 per share for Clear Channel stock, up from a previous bid of $37.60. Despite a series of messages from the company, including a strongly worded letter sent in early March, shareholders remain intransigent--apparently unmoved by a bid representing a roughly 31% premium over current share prices.

The latest note from ISS points to several new developments as evidence the company is more valuable than the private-equity firms would have shareholders believe. One example: a deal struck by Clear Channel Radio with Google that makes a small amount of radio inventory available to the online search company, on terms that are very favorable to Clear Channel.

Wall Street observers say shareholders may hope to create value themselves by undertaking their own initiatives to increase the company's profitability. Rather than sell the company to private-equity firms, which would create more value by cost-cutting and other reforms, Banc of America securities analyst Jonathan Jacoby has pointed to 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."

Also, Clear Channel Radio announced Wednesday that it has sold another 201 radio stations in 38 smaller markets around the country. The company intends to sell another 86 stations to complete the divestment of 362 smaller market stations, for about $370 million.