The focus on this Clear Channel
(CCU)
breakdown, the endless focus, is on the $500 million that the private-equity team, Bain/Lee, will have to pay Clear Channel.
What's more important, I believe, is the billions of dollars I believe the bankers will owe Bain/Lee if they don't find some way to cut this price and make this deal smaller.
There have been dozens of deals that were struck during this period that the bankers wished they could walk away from but didn't. Which says to me, how desperate are they now NOT to have to pay the $22 billion in this very large deal. How desperate are they given the fact that a judge will, I believe, find against them and the damages will be immense, as big as the billions that Lee/Bain can show -- and will -- they would have made if the deal closed in the out years.
I hailed the breakdown as a return to rationality because of the fundamentals of radio and how terrible they are. But you can't break the deal on those because no matter how bad the fundamentals of radio are, CCU's fundamentals are certainly holding up better than everyone else's because of its near-monopoly status. Plus, outdoor ads have been strong. These guys are certainly doing better than another big player -- Cumulus
(CMLS)
, which can't close its deal, either.
I believe the banks will have billions of dollars in exposure in courts, and that they are simply making a calculation that they can put those damages off until their capital is rebuilt. It's just the wrong time to take the money, give it to the deal and then have the deal default, which is what I am sure they are worried about despite all of the rosy projections.
That means we have a situation where either the banks are supremely confident of some kind of case I can't think of, or the banks are so depleted of capital at the moment that they would just as soon drag things out. If it is the latter, why didn't more avail themselves of the Fed's new program yesterday? If it's the latter, why not just keep haggling?
Whatever, if there is a right thing to do it is for the banks to eat the deal and move on. Right now, while I do not expect a court to force the deal to close -- hard to get specific performance -- I do suspect that there are a lot of bad emails around among the banks and when the contract lawsuit gets around to damages they could be far more than the half-billion sum you are hearing about now. Maybe 10 times more.
So, rationality's back, but perhaps at too high a price.
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