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More deal static for Clear Channel

Today, Clear Channel Communications (NYSE: CCU) reported its Q1 results. Revenues increased from $1.49 billion to $1.61 billion, while net income rose from $96.8 million or $0.19 per share to $102.2 million, or $0.21 per share.

But the stock barely moved. Then again, Clear Channel is in the process of a leveraged buyout and the deal is looking iffy.

Recently, Clear Channel's private equity buyers -- Bain Capital Partners and Thomas H. Lee Partners -- upped their bid from $37.60 to $39. But it may not be enough to satisfy major investors like Fidelity Investments and Highfields Capital Management.

Looking at the five-year stock chart of Clear Channel is depressing. The stock price is off about a third. The largest radio operator can't seem to find growth opportunities, and then there are the threats from Internet radio, Apple (NASDAQ: AAPL) iPods, satellite radios, and other digital alternatives.

So if things are so bleak, why would Bain and Thomas H. Lee want to buy the company? Aren't these folks smart and have a history of posting strong returns?

I think the answer is fairly obvious. These investors see a value play.


Taking a look at the proxy for the Clear Channel deal, investment bank Lazard (NYSE: LAZ) performed a valuation and analyzed companies like Citadel Broadcasting (NYSE: CDL), Radio One (NASDAQ: ROIA), and Entercom Communications (NYSE: ETM). The valuation for the radio broadcasting segment ranged from 9.5 times EBITDA to 10.5 times EBITDA.

It's true that Clear Channel is selling at premium of 11 times EBITDA. Yet the company is also the leader in its category and has other assets like a 90% stake in billboard operator Clear Channel Outdoor (NYSE: CCO). The stock is up a third over the past six months and has a market cap of nearly $10 billion.

At present, Clear Channel's stock is trading at $36. At the same time, top-notch private equity operators are willing to fork over $39 per share. Interestingly enough, in a roundabout way, the smart money players are saying that Clear Channel's stock price seems relatively cheap.

Tom Taulli is the author of various books, including the Complete M&A Handbook and the EDGAR-Online Guide to Decoding Financial Statements.

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Last updated: October 15, 2008: 04:09 PM

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