An Unclear Picture

Will Clear Channel's $1.2 billion deal with Providence Equity fall off the table?
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When Clear Channel announced last April that it was selling its station group to Providence Equity Partners for $1.2 billion, the outlook for a smooth transaction looked sunny. Nobody expected it to turn into a bellwether for the increasingly shaky state of the industry.

The months following the announcement offered a hard lesson in economic shifts. The market for borrowing money is now drastically different. And the broadcast economy is hardly sizzling, as private equity firms once so bullish about TV properties have largely backed off.

Making matters worse, Sandy DiPasquale, who is set to run the Clear Channel stations as head of Providence Equity's strategic partner Newport Television, was waylaid by bypass surgery this past fall. Another key player, Clear Channel Television President and CEO Don Perry, stepped down this month before turning up at KPSP Palm Springs just last week. Craig Millar now runs Clear Channel's TV business.

The deal is now in limbo—news that couldn't come at a worse time, given the need for stations to focus on nabbing maximum political dollars. And amidst so much tumult, many express grave concerns about it going through at all. The parties were shooting for a Dec. 1 close; six weeks later, different sources close to the Newport principals were alternately optimistic and pessimistic. (DiPasquale and Clear Channel both declined to comment.)

“The market's so nuts right now,” says one consultant. “The private equity guys are not feeling good about the future.”

Sources say talks remain ongoing. As an agreement on the original terms appears unlikely, two options emerge for Providence: Cough up a hefty kill fee to walk away, or renegotiate with Clear Channel. “They might say, we'll lose more than the $45 million breakup fee if we stay with the [original] deal,” says a second consultant. “They may pull out or at least threaten to—then try to renegotiate.”

Providence wants a deal that better reflects both the state of the nation's economy and the broadcast economy. With private equity openly romancing stations last spring, the $1.2 billion represented a healthy 12-13 multiple of cash flow. More recently, eight Fox-owned stations, considered by some the most attractive group on the market, sold to Oak Hill Capital for $1.1 billion, a 10.5 multiple.

Some wonder if new players, such as the emerging Local TV LLC, will make a play for some of the stations (the 56 outlets include WKRC Cincinnati and 18 digital multicast channels).

Others believe both parties are too far down the path to break it off. Clear Channel Communications is set to be taken over for $18.7 billion by a pair of private equity firms, and hopes to have its divestitures in order before the buyout. “Clear Channel can't afford to not let the TV deal go down,” says Frank N. Magid Associates TV President Steve Ridge. “They need an exit strategy from the TV business to facilitate the overall sale.”

Time is clearly of the essence. Much as some players would prefer to wait and see if the economy stabilizes, indecision is bad for the station business.

Don Perry believes “cooler heads will prevail” and the deal will eventually go through. But he's stunned by how the world has changed in a year. “When it was first put up for sale, we received about a hundred letters of interest, and had eight 6-hour final presentations,” he recalls. “It just shows you how fast the business changes.”

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