Providence Equity Partners might back away from its US$1.2 billion deal to buy Clear Channel Communications’ 56 television stations, an agreement announced in April that was supposed to close soon.
Confirmation of Providence’s sudden case of cold feet came Thursday in a report filed by Clear Channel with the U.S. Securities and Exchange Commission.
“A representative of Providence informed the Company that the Buyer is considering its options under the Agreement including not closing the acquisition on the terms and conditions in the Agreement,” said the SEC report. It noted, however, that neither side had formally canceled the pact.
“The Agreement is in full force and effect and has not been terminated,” reads the statement. “There have been no allegations that the Sellers have breached any of the terms or conditions of the Agreement or that there is a failure of a condition to closing the acquisition.”
Closing the Providence deal is not a condition to closing the pending merger of Clear Channel with the private equity group co-led by Thomas H. Lee Partners and Bain Capital Partners, Clear Channel said in the SEC filing.
Good Lovin’ Gone Bad
The television group currently consists of 10 CW (Warner Bros. and CBS) stations, eight Fox stations, seven NBC stations, six ABC stations, six CBS stations, four My Network TV stations, two NBC Weather Plus stations, two Telemundo stations, five independent stations and six stations affiliated with Clear Channel’s Variety Television Network.
Providence will have to pay Clear Channel $45.9 million if it backs out of the deal, according to published reports that cited unnamed sources.
Providence is unhappy with the financial performance of the Clear Channel TV stations, according to published reports that cited unnamed sources. Providence seemed thrilled about the agreement back in April.
“This is a rare opportunity to acquire a premier collection of broadcast television stations with strong positions in many attractive markets across the United States,” said Providence Equity Managing Director Al Dobron at the time.
Providence was hoping to “identify additional potential high-quality television opportunities,” Dobron also said in April.
It’s Only Money
Although Clear Channel’s SEC report insists nothing has occurred that could be construed as a breach of contract, Enderle Group Principal Analyst Rob Enderle said he wonders whether something turned up during the past six months.
“I have hard time believing Providence is going to pull out of this and take a hit,” Enderle told the E-Commerce Times. “Probably a breach showed up in due diligence. That’s a pretty big termination fee. That’s just a straight bottom-line loss in terms of the fee, so I kind of wonder if there is some other part of this that we are not seeing. With this kind of a termination fee, it clearly is in their best interest to find some way to get it to work.”
However, if Clear Channel is correct in stating there has been no breach, then Providence’s numbers crunchers must have determined it worthwhile to risk paying nearly $50 million and getting nothing in return.
“It may be this is a bargaining strategy to see if somehow they can sweeten the deal” said Enderle. “Maybe they don’t like some aspect of the revenue, which wouldn’t be surprising because the TV market hasn’t been the hottest. They could have some concerns with being able to grow the investment once they have it.”
Writing on the Wall
The current strike by TV and movie writers might be among those concerns, he suggested.
“We are walking into a potentially long strike with the writers, and that is going to do horrible things to [stations’] revenue,” noted Enderle. “If I’m thinking about making a pretty big buy into any one of these properties, now would not be the time to do it. It may very well be that it is going to hit hard enough that this $45.9 million penalty is less than the amount of value they are going to lose in the property because of the strike, plus the loss of sustaining revenue.”
Clear Channel is reportedly OK with Providence’s newfound reticence and said it has no problem retaining the TV stations in its portfolio. “Especially if they get some 45 million bucks to do it,” said Enderle. “It’s a no-brainer. They’ll take the 40-some million dollars and have a party.”