Somewhere, Ivan Boesky is smiling.
The infamous dean of insider trading couldn't help but be overjoyed by the action in
stock last week. Early Monday morning, AMFM agreed to merge with
Clear Channel Communications
to create the world's largest radio company. Analysts and institutional investors generally applauded the deal, which will give Clear Channel a presence in more than 90 of the 100 biggest U.S. radio markets.
While the deal was billed as merger, Clear Channel will name a majority of the combined board and Clear Channel shareholders will own 63% of the new company's stock. Those facts translate into a Clear Channel takeover of AMFM, and takeovers usually mean a big jump in the stock of the company that's being bought -- the so-called takeover premium.
But in trading Monday, AMFM barely moved. With 5 million shares changing hands, the stock rose 1 5/16, or a meager 2%, to close at 65 3/16.
Or maybe not so strange. Because on Friday, AMFM rose 3 1/8, or some 5%, to 63 3/4 as 1.8 million shares changed hands, its heaviest trading volume in more than a month. And on Thursday, AMFM rose almost 6 points, or around 10%, again in heavy volume. Together, the two moves represented a gain of more than 15% from AMFM's Wednesday close.
Hello, takeover premium. And hello, insider trading.
...while Infinity declines...
...and Clear Channel follows suit.
To be sure, a deal between Clear Channel and AMFM had been
discussed as long ago as January, when AMFM put itself up for sale in the face of a sluggish stock and investor dissatisfaction with its management. But after failing to get the price it wanted, AMFM took itself off the block in March, and the rumors largely subsided -- until the end of last week.
Who knew what, and how did the news spread? Aside from a brief mention by David Faber of
, the rumors weren't picked up in the press last week. But a Friday morning
research report noted "an apparently renewed perception by investors that an AMFM/Clear Channel merger may again be a possibility." Analyst Richard Rosenstein didn't take a stand on whether the deal would happen but argued that "a combination would make strategic sense." Representatives of AMFM and Clear Channel couldn't be reached to comment.
By Friday, "there were general rumors," says Ken Korngiebel, a portfolio manager with
, which owns more than 2 million Clear Channel shares. What did Korngiebel hear, and when? He declined to comment, as did several other buy-siders and sell-side analysts.
But both Clear Channel and AMFM made presentations Thursday at a big media industry conference in Los Angeles hosted by
. Clear Channel Chairman Lowry Mays told investors that he was interested in buying AMFM or other radio companies, according to one person present at the presentation. But Clear Channel is extremely acquisitive, and Mays' comments were hardly news to the sophisticated investors at the Merrill conference. "He's been saying that for a year," this person says.
Then AMFM executives suddenly pulled out of "one-on-ones," individual meetings with important portfolio managers who were interested in discussing the company's prospects face to face. That fact alone would have been enough to wind the rumor mill. Executives rarely pull out of conferences or meetings with big institutional investors without very good reason.
Still, AMFM eased Friday morning, falling as low as 57 by noon. Then the rumors went into overdrive, and the company's stock followed. In four hours, it was up 7 points, a 12% gain.
"It was very suspect," says Lillian Seidman of the options-trading team at
. There was "a lot of volume in the stock, a lot of premium in the options, and the stock went up last week in anticipation. ... It was clear that something was happening."
One radio industry executive says he didn't hear confirmation of the deal until Sunday afternoon, but knew on Friday that some rumors must have leaked because of the action in AMFM's stock. He says that gap makes him believe the leaks must have come from the investment banks or lawyers handling the deal, rather than from inside the companies. "I would have heard," he says. "I've got pretty good sources within the industry."
Investment banks on the deal included
Salomon Smith Barney
, which represented Clear Channel, and
Morgan Stanley Dean Witter
Greenhill & Co.
Deutsche Banc Alex. Brown
, which represented AMFM. Investment bankers at those firms either couldn't be reached or declined to comment on the deal.
All this adds up to as many questions as answers, but have no fear. The
Securities and Exchange Commission
will surely do its usual thorough job of finding the culprits. Expect to hear from the regulators in, oh, about 2002. Or, more likely, never. (The agency, which wasn't immediately available to comment, as a matter of policy won't comment on specific cases.)
"It happens all the time," Seidman says. "You rarely hear of cases that are investigated to the max."