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.
Reader Comments (Page 1 of 1)
4-26-2007 @ 3:11PM
bat said...
Is anyone watching the Board here? First of all, the terms & conditions of the sale were not in the "Best Interest of the Shareholders" to realize and obtain market or private value for the Company. Where is the Independence? Second, beginning in the 4th qtr. of 2007, the political $$ will be significant through year end 2008 increasing the projected EBITDA or Cash-Flow. By the end of 2008, the EBITDA or Cash-flow is estimated to be approx. $2.7 to $2.8 billion which will make the "Management Led Buy-Out (LBO) a bargain at approx. 9X 2008 estimated Cash-Flow. One final note...there is over a $1 per share in "Net Quick" that most valuation models have missed....Again, Where is the board who is suppose to be watching out for the shareholders interest? Is Sarbanes Oxley really working here?......comments anyone
4-26-2007 @ 7:43PM
Jerry said...
I don't actually get this deal. It appears pretty obvious to me that the company is worth more in pieces than as a whole. So after it goes private, the new owners can keep spinning off assets until they get it down it a small core of major market stations and then go public again. If they can make money this way, why don't they have an obligation to do this for the current shareholders?