Updated from 2:17 p.m. EST
Hell hath no fury like analysts scorned.
Several media industry analysts Monday sharply criticized an article in the current issue of
that was less than effusive in its evaluation of radio giant
Clear Channel Communications
and its growth prospects.
The piece also suggested that the independence of analysts who evaluate the stock might be influenced by the large volume of investment banking business that Clear Channel generates.
The article weighed on Clear Channel's stock, which dropped Monday despite what most analysts called good news regarding the company's divestiture of 72 stations. The company has agreed to sell 18 stations to
, the radio and outdoor advertising arm of
, for $1.4 billion.
The stations in the Infinity deal fetched a multiple of more than 20 times cash flow; Wall Street had expected a multiple closer to 18. Still, Clear Channel shares fell 5, or 7%, to close at 67 3/8.
The radio company had to divest the stations because of its pending merger with
article, headlined "Fading Signal?," questioned why analysts might have raised or reaffirmed their buy ratings on Clear Channel after the company
announced last week that it would acquire
. "A cynic might argue there were other motives behind these ballyhoos," according to the article. "After all, Clear Channel's acquisitive ways have generated huge investment banking fees over the years."
Analysts did not hesitate to strike back. "We believe the article lacks merit and remain aggressive buyers of CCU stock,"
Salomon Smith Barney
said in a report issued Monday morning. Salomon Smith Barney is advising Clear Channel in its deal to acquire SFX.
In a report dubbed "Bashed by Barrons -- Reaffirm Strong Buy," Andrew Marcus, an analyst at
Deutsche Banc Alex. Brown
, offered his own rebuttal of the
piece. "The article is a cut and paste job of old articles, and we learned nothing new," he wrote.
Marcus adds in his report that Barron's has "negatively mentioned Clear Channel at least a half dozen times in the last decade. Meanwhile, Clear Channel was the fifth-best-performing stock of the 1990s." Deutsche Banc Alex. Brown has done some investment banking for the Clear Channel, according to a footnote in Marcus' report. Marcus rates the stock a buy.
Lee Westerfield of
said the firm's sales force is out reassuring institutional clients regarding the
article's conclusions, with which he also strongly disagrees.
Westerfield, who said he "couldn't be more bullish" on Clear Channel and rates the stock a buy, said it was preposterous to think that analysts' conclusions were based on the fees generated by a firm's investment banking business.
"I don't get paid to do banking," he said. "I get paid to service institutional clients." PaineWebber has done some investment banking business with Clear Channel, Westerfield noted, adding that he criticized the article based on his interpretation of the facts, not the jibe that analysts might be unduly influenced by darker motivations.
Christopher Ensley, of
Lazard Freres & Co.
, which has not done any underwriting for the company and rates the stock a buy, called the article "hugely negative" as well.
Analysts disagreed with two basic assertions in the piece: That ad growth is slowing down and that satellite broadcasting would soon displace radio as a dominant content distribution outlet. They contend that radio advertising has developed into one of the more recession-proof media as it continues to grab market share from other mediums. "Advertising is growing as a secular business and is no longer cyclical," Westerfield said.
For its part, satellite broadcasting is not yet in a position to eat away at radio market share, analysts said. When it does, it will likely only do so on a national basis, and national advertising accounts only for 25% of ad revenues, according to Salomon Smith Barney.
Leslie Norton, the author of the
article, did not return a call for comment.