At the same time it announced its $26.7 billion merger with private equity firms this morning, Clear Channel said it would spin off all of its 42 TV stations and 448 of its 1,150 radio stations.
Clear Channel Communications said this morning that it is selling its group of 42 TV stations in 24 small- and mid-size markets along with 448 of its 1,150 radio stations, all in markets outside the top 100.
Assuming that Clear Channel TV operates at a 35% cash flow margin on revenue of $350 million and assuming a cash-flow multiple of between 10 and 12 for calculating value, the sale price for the group would be between $1.2 billion and $1.5 billion. Station brokers contacted by TVNewsCheck estimated that the sale price would be at the lower end of that range.
The announcement of the TV/radio spin-off coincided with a larger one in which Clear Channel said it had agreed to a takeover by a private equity group led by Thomas H. Lee Partners and Bain Capital Partners for $18.7 billion and the assumption of $8 billion
The per-share price of $37.60 is a 25% premium over the average closing share price of $29.99 over the past 30 days, Clear Channel said.
Clear Channel said the sale of the TV and radio assets is not contingent on the Lee/Bain deal.
In its press release, Clear Channel characterized the deal as a “merger” and in prepared statements, principals for the equity firms signaled that they were not only buying assets, but the management team led by the CEO Mark Mays and his brother, CFO Randall.
Clear Channel also said the agreement with the equity firms allows it to solicit higher bids until Dec. 7 and to negotiate with any competing bidders that may emerge until Jan. 5, 2007.
Also, Clear Channel may entertain unsolicited bids at any time. If it accepts one, it will owe Lee/Bain a break-up fee.
That shopping-around provision suits at least one securities analyst just fine. Victor Miller, who follows Clear Channel closely for Bear Stearns, issued a statement saying he believes the company is worth between $39 and $41 a share.
Clear Channel Television, headed by CEO Don Perry, generates annual revenue of $350 million. According to the BIA Financial Network, it ranks 18th among TV station groups in annual revenue and 17th in audience reach. Its stations cover about 12.5% of all TV homes in the nation.
The Clear Channel TV stations operate in markets ranging from San Francisco (DMA 6) to Fairbanks, Alaska. (DMA 203). It is seen as one of the more innovative groups in exploiting the new digital media.
One possible buyer has stepped forth. In his third-quarter conference call, LIN Television CEO Vincent Sadusky said that he was interested in the Clear Channel stations, but he also conceded that the company lacked wherewithal to make a bid without a major financial restructuring.
Station broker Larry Patrick believes the TV group will be broken up as it is being sold. “It almost has to be,” he said.
The group’s stations are so diverse in market size and affiliation that acquiring the entire group would make little sense to most potential buyers.
Belo, Gannett and LIN may be interested in Clear Channel’s strong network affiliated stations in Cincinnati, Salt Lake City and Harrisburg, Pa., and Nexstar and Barrington might go for the affiliates in smaller, mid-sized markets, he says. These same broadcasters and others might pick up stations in certain markets as duopoly plays.
But none of them would have much use for the low-margin or no-margin stations in the smallest markets, he says.
“I don’t know that a company like Belo that might be interested in San Antonio or Memphis is going to jump up and down and say, ÃƒÂ¢Ã¢â€šÂ¬Ã‹Å“Oh, yeah, give us Fairbanks, Alaska, in that package,'” he says.
In breaking up the group, Patrick says, Clear Channel has to be careful not to create any “orphans”—left-over stations that nobody wants. That’s what happened to Emmis Communications when it tried to sell its TV group, he says. It ended up with stations it couldn’t sell in New Orleans and Honolulu.
Buyers should also beware of hidden costs with some stations. Clear Channel’s ABC-CW duopoly in Memphis is attractive, but it benefits from having Clear Channel radio stations and outdoor advertising in the markets, Patrick said. After the sale, the cost of operating may go up because the new owner will have to pay for some of the billboard and radio promotion that used to be free.
Also complicating the sale for Clear Channel is the fact that there is a lot of other “good stuff” on the market, Patrick says. The New York Times stations are “really, really good stations in solid middle markets” and probably more attractive than Clear Channel’s properties, he says. “You need to see that go through and see what type of multiple they get.”