Analyst sees no clarity on Clear Channel deal; airline merger buzz fails to halt skidding share prices

By Paul A. Harris

St. Louis, Feb. 14 - The Department of Justice gave qualified approval to the Clear Channel Communications Inc. LBO deal late Wednesday.

However despite this and other good news on Thursday, an equity analyst who covers radio continued to nurture doubts that the deal will get done.

Clear Channel (NYSE: CCU) shares closed $0.64, or 2.17%, higher at $30.13 on Thursday, a session that saw the major U.S. stock indexes tumble well over 1%.

Meanwhile the company reported fourth quarter 2007 earnings of $320 million, or $0.65 per share, up from $211 million, or $0.43 per share, during the same period in 2006.

Clear Channel also stated Thursday that it expects the LBO deal, in which Bain Capital and Thomas H. Lee would acquire the radio conglomerate for $39.20 per share, to close by the end of the present quarter.

The DoJ approval hinges on Clear Channel divesting itself of stations in Houston, Las Vegas, Cincinnati and San Francisco.

Although Clear Channel shares closed higher on Thursday, the price is down approximately 13% since the deal was announced, leading some to believe that faith in the approximately $20 billion LBO has waned.

The equity analyst told Prospect News on Thursday that - positive news notwithstanding - it is not clear that the Clear Channel deal will close.

"It's a very undiligencible situation," the analyst said, speaking on background.

"There are only two guys who know the answers, and they are sitting at Tommy Lee and Bain.

"I think the stock has been down because people wonder if they're actually going to close the deal.

"And I don't really think the DoJ ruling changed very much."

Hands across the water

Shares of U.S. air carriers ended the Thursday session lower, primarily because crude oil prices spiked to $94.00 per barrel, according to an equities analyst who covers the sector.

Early on Thursday Bloomberg reported that Air France-KLM Group is considering investing in a combined Delta Air Lines-Northwest Airlines Corp. entity, in exchange for a board seat.

Delta and Northwest have been in merger talks that could produce a deal in coming weeks.

The analyst, noting that The Wall Street Journal reported last month that Air France-KLM could invest $1 billion in a combined carrier, commented that the market had been anticipating a stock-for-stock merger of equals, with respect to the Delta-Northwest deal.

If Air France gains a stake, the analyst said, it could result in a small cash payout plus a stock deal.

On Thursday shares of Air France - KLM (OTC: AFLYY) fell 4.23%

Delta (NYSE: DAL) saw its share price decline by 3.73%, down $0.66 to close at $17.05.

Northwest (NYSE: NWA) finished the Valentine's Day session at $17.19 per share, down $0.51 or 2.88%.

Among other U.S.-based carriers, UAL Corp. (Nasdaq: UAUA) closed at $37.03 per share, down $1.56, or 4.04%.

Continental Airlines, Inc. (NYSE: CAL) finished at $28.70, down $1.34, or 4.46%.

AMR Corp. (NYSE: AMR) gave up $0.88 per share (5.61%) to close at $14.81.

Shares of Alaska Air Group, Inc. (NYSE: ALK) ended $1.43 lower (5.14%) closing at $26.40. And JetBlue Airways Corp. dropped by 6.89%, $0.47 lower on the day as it closed at $6.35 per share.

A lawsuit and a looming deadline

Elsewhere Thursday market watchers were gauging the possible impact that New York State attorney general Andrew Cuomo's planned lawsuit against UnitedHealth Group, Inc. could have on UnitedHealth's bid to acquire Las Vegas-based Sierra Health Services, Inc., for $43.50 per share in a transaction valued at $2.6 billion.

Sierra Health (NYSE: SIE)'s shares gained $0.65 on Thursday, up 1.59% to close at $41.65.

One issue at the heart of the lawsuit is how UnitedHealth bills clients for out-of-network doctor visits.

Cuomo's suit names UnitedHealth and its subsidiaries, United HealthCare Insurance Co. of New York, Inc., United Healthcare of New York, Inc., United Healthcare Services, Inc. and Ingenix as potential defendants.

In an official press release the attorney general stated "The United insurers and many other health insurance companies relied on the Ingenix database to determine their "reasonable and customary" rates. The Ingenix database used the insurers' billing information to calculate a "reasonable and customary" rate for individual claims by assessing how much a similar type of medical service would typically cost, generally taking into account the type of service, physician, and geographical location. However, the investigation showed that the "reasonable and customary" rates produced by Ingenix were remarkably lower than the actual cost of typical medical expenses.

The United insurers and Ingenix are owned by the same parent corporation, United HealthGroup. When members complained their medical costs were unfairly high, the United insurers hid their connection to Ingenix by claiming the rate was the product of "independent research."

According to Cuomo, United's ownership of Ingenix creates a conflict of interest because the relationship gives Ingenix an incentive to set rates that benefit United and its subsidiaries.

"The lack of accuracy, transparency, and independence surrounding United's process for setting a 'reasonable and customary rate' is astounding," Cuomo states.

"United's ownership of Ingenix coupled with the inherent problems with the data it is using clearly demonstrate a broken reimbursement system designed to rip off patients and steer them towards in-network doctors that cost the insurer less money."

On Thursday the Las Vegas Sun reported that Nevada Insurance Commissioner Alice Molasky-Arman's ruling in favor of the UnitedHealth-Sierra Health merger will expire on Feb. 29 if the deal has not closed by then.

A market source said that the in the face of that looming deadline it is conceivable that the Cuomo's lawsuit against UnitedHealth could impact the merger.

On Thursday shares of UnitedHealth (NYSE: UNH) gave up $0.36 to close at $46.61, 0.77% lower.

In addition to the lawsuit, Cuomo has issued 16 subpoenas to health insurance companies.

Included among them is Aetna Inc. (NYSE: AET). Aetna's shares closed slightly lower at $49.22 on Thursday, down $0.04, or 0.08%.

Also named was Cigna Corp. (NYSE: CI) which saw its shares drop 2.05% to close at $45.85, down $0.96.

In addition a subpoena went to WellPoint, Inc. (NYSE: WLP), shares of which fell 0.95% on Thursday, to finish the session at $73.71, down $0.71.

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