Clear Channel deal no longer clear; Manor Care deal headed for hearings; Restoration gets restored by deal

By Evan Weinberger

New York, Nov. 8 - Clear Channel Communications Inc. admitted Wednesday that a private equity shop was rethinking its offer on 56 television stations, livening up what had been an uneventful day in the leveraged buyout market. That report threw the broader takeover of Clear Channel by a separate private equity firm into question.

Also Thursday, lawmakers in Pennsylvania and regulators in New Jersey threw a cloud over the private equity takeover of Manor Care, Inc.

One leveraged buyout was announced in the wake of Wednesday's market carnage. Corte Madera, Calif.-based house- and hardware retailer Restoration Hardware Inc. announced it had agreed to be taken over by Greenwich, Conn.-based private equity shop Catterton Partners.

Other than that, "It's quiet," a market source said.

The wildly fluctuating equity markets did not play a role in that quiet, the source said.

They did, however, draw a lot of attention. A day after the Dow Jones Industrial Average tumbled 360 points, the index opened lower. Then there was a rally. "It seemed like a lot of momentum selling right off the bat," another market source said. "Once people started seeing buyers step in, you saw the momentum switch."

In the end, after falling nearly 200 points, the Dow closed down 33.73 points, or 0.25%, at 13,266.29.

The Nasdaq continued to get hit hard, as tech stocks took it on the chin again. The tech-heavy index closed at 2,696, a drop of 52.76 points, or 1.92%.

The Standard & Poor's 500 gave back a modest 0.85 point, or 0.06%, for a 1,474.77 close.

One catalyst for the rally may have been a letter sent by James B. Lockhart III, the director of the Office of Federal Housing Enterprise Oversight to New York State attorney general Andrew Cuomo Thursday. In the letter, Lockhart chastised the former Secretary of Housing and Urban Development for his actions against Fannie Mae and Freddie Mac, including Cuomo's demand that the two federally backed lenders stop doing business with Washington Mutual.

"I believe that all relevant government agencies shoulder a responsibility to eliminate fraudulent and otherwise bad actors from the market while also respecting the many legitimate parties - borrowers, appraisers, lenders and investors - trying to participate in this market during this uncertain period," Lockhart said in the letter. "We need not aggravate the latter in pursuit of the former."

Another market source said the letter "put a bid back in the entire market."

Clear Channel deal now unclear

Back in April, Providence Equity Partners agreed to buy 56 local television stations from San Antonio-based media giant Clear Channel for $1.2 billion. There is a $45 million breakup fee on the deal.

Late Thursday it appeared that the deal may not go through, according to media reports. And that threw Thomas H. Lee Partners and Bain Capital Partners' nearly $20 billion deal to purchase Clear Channel into question. The fear, the reports said, is that Thomas H. Lee and Bain will want to revise the deal based on a new valuation if Providence backs out of its deal for the TV stations.

A report on the Wall Street Journal's web site late Thursday afternoon said that Providence was concerned about the performance of the stations.

Clear Channel said in its third-quarter earnings report that it expects the deal with Thomas H. Lee and Bain Capital to go through in the first quarter of 2008. But stockholders approved the buyout in September, and the deal has yet to close.

Clear Channel also announced that its third-quarter profits were up 51% because of strong growth in its outdoor marketing and billboard business.

Reports of a potential breakdown in the TV station deal broke that good feeling, however, and the company's stock (NYSE: CCU), lost $1.06, or 2.95%, for a close of $34.85 Thursday.

Manor Care deal faces scrutiny

Toledo, Ohio-based nursing home operator Manor Care still expects its buyout by the Carlyle Group to close soon, the company announced Thursday. However, there may be a delay, the company conceded. "There can be no assurance that the closing will in fact occur within the expected time frame," it said in a statement late in the afternoon.

One reason for the delay might be scrutiny from public officials in two states. Lawmakers in Pennsylvania and regulators in New Jersey want to take a look at the details before the deal is finalized.

On Wednesday, state Rep. Phyllis Mundy invited representatives from the Pennsylvania Health Department, the Service Employees International Union, Manor Care and Carlyle group to appear before a panel of Pennsylvania lawmakers on Nov. 13. "I do not want to find out next year at this time that, because we failed to ask reasonable questions, we are facing a crisis of care in Pennsylvania's nursing homes," Mundy said Wednesday, according to the Associated Press.

Market sources told Prospect News that they spoke to Mundy's office but said her representatives were "vague about the aims of the hearing and the possibility it might delay the deal."

The market sources also said that the New Jersey Department of Health and Human Services had not approved Manor Care's license transfers as of yet.

Stock in Manor Care (NYSE: HCR) lost 35 cents, or 0.52%, to close at $66.41.

Restoration to get restored

Before market open Thursday, Restoration Hardware announced that it agreed to a takeover bid by private equity shop Catterton Partners. The deal is for an estimated $267 million, or $6.70 per share. The purchase price represents a 150% premium on Restoration Hardware's (Nasdaq: RSTO) closing stock price of $2.68.

The deal, which was negotiated by a special committee of independent directors of Restoration Hardware, will close in the first quarter of 2008. The committee will listen to offers from other interested parties, but the deal has the support of the entire board of directors.

"We are pleased to announce this transaction, which delivers significant value to our stockholders," Restoration Hardware chairman, president and chief executive officer Gary Friedman said in a statement. "In addition, we are excited about the opportunity to work with Catterton Partners, which has a successful track record and significant experience in the consumer and retail industries. We believe this partnership will provide us with important resources to execute our operating and growth strategies over the long-term."

Catterton Partners focuses on troubled consumer products and retail companies, including Breyers Yogurt Co., Baja Fresh Mexican Grill and Frederic Fekkai.

Restoration Hardware stock went through the roof Thursday, closing near the agreed purchase price at $6.44, a gain of $3.76, or 140.30%.

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