Clear Channel seen gaining leverage in fight over funding LBO, but some anticipate revisions

By Paul A. Harris

St. Louis, April 3 - Market sources scored the latest rounds of the New York and Texas court battles concerning the Clear Channel Communications Inc. LBO in favor of the deal's proponents.

On Wednesday the federal Western District Court of Texas found in favor of the company in a dispute over the venue of Clear Channel's lawsuit to force its banks to fund the $39.20 per share, $19.4 billion merger.

The Federal judge remanded the case to the Judicial District Court of Bexar County, Texas, where Clear Channel is headquartered.

"That gives them home court advantage," said a special situations equities analyst.

"It was not a huge round, but clearly Clear Channel took it.

"Now they're going to have more leverage over any settlement talks.

"It now looks as though the deal will get done, but at a lower price."

Clear Channel (NYSE: CCU) closed Thursday at $28.37 per share, up $0.13 or 0.46%.

Meanwhile Thursday afternoon in New York state court, Thomas H. Lee and Bain Capital won the right to a May 5 trial over their bid to force the banks to finance the buyout.

The banks are planning a countersuit in that action.

Parsing private equity's motives

An equities analyst who covers Clear Channel also noted the company's home court advantage in the Texas case.

This source also commented that while the equity firms appear to be cheering the deal on they can't be all that excited about it at $39.20 per share.

"If you got it in the mid-$20s you would be getting Clear Channel at a price that's probably at a discount to a lot of its peer group, or certainly no worse than its peer group.

"In that range the downside risk gets somewhat limited."

The analyst recounted that a year ago the company sold its television business to Providence Equity Partners Inc.

"They had horrible television operations and they sold them," the analyst added.

"Had it not been for the LBO they might not have done it."

That analyst also recalled that Clear Channel divested 448 radio stations that were outside of the top 100 markets.

"They still have a huge majority interest in Clear Channel Outdoor which is a fine company," the analyst added, noting that the operation is among the world's three largest, its bigger competitors being CBS Outdoor and France's JCDecaux Group.

"The outdoor advertising business is the second fastest growing media sector, next to the internet advertising," the analyst added.

"Not that any media sectors are growing particularly rapidly, right now. But ad spending tends to grow in line with GDP.

"So that moderates the risk as well."

Elsewhere in the sector, on Thursday, Westwood One, Inc. (NYSE: WON) gained 1.87% to close at $2.18, up $0.04.

Cox Radio, Inc. (NYSE: CXR) gained 0.59%, closing at $11.98, up $0.07.

And Radio One, Inc. (Nasdaq: ROIAK) was up 0.67% at $1.50 per share, $0.01 on the day.

Gamco eying early wrap

On Wednesday Gamco Investors, Inc. reported that it had upped its stake in Rural Cellular Corp. to 14% from 13%.

A special situations analyst said that Gamco is likely betting that the acquisition of Rural Cellular by Verizon Wireless will wrap up during the second quarter, which is the expectation that Rural Cellular disclosed in an 8-K document that it filed on March 14 with the Securities and Exchange Commission.

The $757 million all-cash deal will expand Verizon's rural wireless coverage into Rural Cellular's Unicel network in 15 states.

The deal is still pending Hart Scott Rodino and Federal Trade Commission approvals, the analyst added.

"Obviously Gamco sees something," the source said.

"Rural says the deal will be closed by June 30.

"However the termination date is July 4, which would negatively affect the spread."

Rural Cellular shares (Nasdaq: RCCC) closed the Thursday session at $44.43, essentially flat on the day (up 0.07% or $0.03).

Meanwhile Verizon Communications Inc. (NYSE: VZ) gained $0.11 per share Thursday to close at $38.07, up 0.29%.

Elsewhere in the wireless sector AT&T Inc. (NYSE: T) gained 0.75%, or $0.29 per share, to close at $39.01.

United States Cellular Corp. (AMEX: USM) climbed by $1.45, or 2.55%, to close at $58.35.

MetroPCS Communications, Inc. (NYSE: PCS) gained 5.68%, or $1.03, to close at $19.15.

BEA Systems funding in place

In the technology sector, shares of Oracle Corp. (Nasdaq: ORCL) closed 0.98% higher on the day, up $0.19, at $20.68 per share, as the market learned that Oracle successfully placed $5 billion of intermediate and long-term debt to fund its acquisition of BEA Systems Inc. for $19.375 cash per share in a deal valued at about $8.5 billion.

BEA (Nasdaq: BEAS) shares were flat, closing 0.05% lower at $19.18, down a penny.

Elsewhere, however, in the tech sector, Adobe Systems Inc. (Nasdaq: ADBE) closed 1.4% higher on Thursday at $37.01, up $0.51.

Sun Microsystems, Inc. (Nasdaq: JAVA) ended flat, losing a penny, or 0.06% to close at $15.95.

Microsoft Corp. (Nasdaq: MSFT), meanwhile, gave up 0.55%, or $0.16, and closed at $29.00.

The major U.S. indexes closed slightly higher on the day.

The Dow Jones Industrial Average inched up 0.16%, or 20.20, to close at 12,626.03.

The S&P 500 was up 0.13%, or 1.78, closing at 1,369.31.

And the Nasdaq closed 0.08% higher at 2,363.30, up 1.90.

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