Issues & Opinions

This question might apply both to the Marketwatch website and to the principals in the Clear Channel LBO saga (details at Dan Primack’s always enjoyable peHub).

First, though, Marketwatch - their blast email message a bit ago, was entitled:

As this is a subject that interests me, and I happened to be up and at the computer when it arrived, I clicked on it, only to find the title now was:

Which actually makes much more sense, and congrats to them on the quick kick-save. The first headline was so intriguingly worded as to be downright inflammatory (unintentionally, on the inflammatory part, I’m sure). The case went before the judge only within the last 12 hours or so, and it would seem to me (a non-lawyer) that an order to fund a $19 billion deal, under terms that everyone seems to think will start out causing a large hole in the pockets of the funding banks, would at least take longer to arrive at.

From Heidi Moore’s WSJ Deal Blog entry of yesterday afternoon, “Clear Channel: What Would Yoda Say?”, a plausible argument that neither the PE group (THL & Bain) nor the banks want to carry the deal forward:

In this upside down world, it’s easy to see doubts behind every negotiation. Blackstone Group, for instance, pointed to apparently onerous regulatory requirements as a reason it was wary of the buyout of ADS. Last week, the OCC clarified its stance. Now many people are watching Blackstone to see if that was enough.

Similarly, the buyout firms and lenders involved in Clear Channel are arguing over the terms of the debt financing. Does their inability to agree indicate a healthy negotiation, or a passive-aggressive attempt to spike the deal without suffering reputational consequences?

Sometimes contracts encourage parties to take the fight as far as possible. Walker told us, “One of the ways that the buying group can argue that it has satisified its obligations is to bring a lawsuit against the lenders. Once they satisfy that, their only obligation is to pay the termination fee, not to close the deal.”

By that playbook, the penultimate act by the banks and PE firms was taken yesterday, and a reasonable person might have concluded that CCU was well and truly a dead deal.

Whoops. The Texas court, at least (there’s a separate suit in New York) has thrown a spanner into the works, and might well, before it’s over, force a financing camel through the eye of this particular deal needle.

The commenters on Ms Moore’s blog entry are almost unfailing in their desire to say she was wrong about the intent of THL and Bain, but a reasonable person could say the jury’s still out on that.

And I do.

Addendum: In today’s PE Week Wire, Dan Primack adds:

In case you haven’t heard, Clear Channel and its prospective buyers – Bain Capital and Thomas H. Lee Partners – late yesterday sued six banks for refusing to fund the protracted $19.5 billion deal. The suits were filed in New York and Texas, with the primary difference being that the plaintiffs asked for the death penalty in Texas. No, wait, I’m being told that’s not correct. The primary practical difference is actually that CCU is being represented in the Texas suit by Joe Jamail, who represented Penzoil in a suit against M&A backtracker Texaco. The result was a jury award that essentially bankrupted Texaco, so the banks should be more than a bit concerned about that one.

(emphasis mine)

I do so like a clever turn of a phrase.

It was only after reading his piece that I realized Joe Jamail was involved, and I find myself questioning whether the addition of Jamail should cause any tremors, based on something he did half-a-life ago. He’s fast approaching 200 years old (though, admittedly, no faster than I am), and has had at least one big case in recent years that I’m aware of which ended badly enough for him that he fired the client rather than appealing.

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