Clear Channel Interrupted

Clear Channel's ten-year quest to take over the world -- at least the world of radio -- has ended with shareholder approval to take the firm private at the end of the year.

It's a $19.5 billion buyout and the preliminary vote approved the merger with T.H. Lee Partners and Bain Capital Partners.

The timing was critical because investment money is hard to find these days -- a far cry from 1996 when consolidation was enabled by law. Now the shareholders are in a far more agreeable mood because it's as good a deal as they're going to get.

Back when Clear Channel stock was selling in the $90 range, executives predicted it would be a $100 stock. That never happened. In fact, the bottom eventually fell out.

Under the deal approved yesterday, Clear Channel shareholders were to get only $39.20 in cash per share and current shareholders could get as much as 30% of the new company.

The new owners will assume $8 billion in debt.

So what have we learned from this 11-year experience?

1. Venture capitalists don't buy assets to run them. They acquire things to build and then flip them for a profit. Bain and Lee have a unique problem. The assets they are acquiring will likely be worth less as the years go on because radio is on the decline.

2. Now is a good time to resell. I wouldn't be surprised if some assets are sold off in advance of the usual 5-7 year window. Clear Channel owns prime real estate even if it isn't what it used to be worth.

3. Lots of good management talent will be exiting the company if they can find better jobs. It probably is in their best interest to take the money and move on. This is to the detriment of the new Clear Channel because it isn't the Mays' who made Clear Channel radio's biggest group. It is their employees who are Clear Channel's biggest asset.

4. Consolidation has been a miserable failure. Imagine. Companies like Clear Channel got a virtual green light from the government to multiply and form a monopoly and even with that they couldn't run these companies. It's almost as if the radio gods were saying, "no owner can run more than 14 AM and 14 FM stations effectively at one time". The more they owned, the more they failed. Consolidators were banking on a second relaxation of ownership rules that never happened. Minus that, consolidators couldn't keep cranking out the numbers they were promising to investors.

5. Some radio CEOs who eventually took their companies public were not a very impressive lot. They couldn't compare with leaders in other segments and they didn't really do well with on the job training. When they were acquiring stations and heaping on more free cash flow, they looked competent. Once the acquisitions slowed down and they had to run their businesses, they looked -- well, the opposite of competent at times.

6. Debt catches up with you -- and it doesn't matter whether it's personal or corporate. When I published Inside Radio some financial people I respected a lot used to tell me these new consolidators would never be able to manage their debt. That the multiples were out of whack. The numbers didn't work. Back then, everyone looked away. They must have known.

7. The Internet, iPods, iTunes, mobile phones, the next generation and the social networks they now gravitate to are some major reasons why radio consolidators like Clear Channel lost the next generation, but not the only ones. Clear Channel has done a little better than their competitors in online ventures but from my vantage point none of them understand how to extend their brands and create new ones for future generations. Big consolidators gobble up companies because they can (and because their investment banks earn more fees).

8. Shareholders who bought the hype about radio stocks during consolidation, let me introduce you to "sell stop". You held it too long. You bought the hype about creating shareholder value. You should have bought Apple at $9 (now over $150).

9. The government is to blame. Few people hold the government responsible for ruining the radio industry. Deregulation was just another term for nothing else to lose (if I may butcher Janis Joplin's lyrics here). The airlines were deregulated -- you know how that turned out. The trucking industry was deregulated -- what a mess. Democrats and Republicans both are guilty of launching the great land grab. But in the end, deregulation or re-regulation or whatever you want to call it weakened the radio industry.

10. Don't let the NAB off the hook. The NAB was the group that engineered radio consolidation as an add-on to the Telecommunications Act of 1996 -- at the last minute. Your lobby group helped create this monster. Now the NAB -- under new leadership -- owes you one and they can start making up for their mistake by leading a vigorous (and hopefully successful attack) on record industry attempts to levy further taxes on radio stations for music rights.

11. The people who maintained their faith and their class during the tough times of consolidation are the real story. They loved the industry even though their consolidated employers threw many roadblocks in their way. Imagine running a local radio station competitively when 80% of the decisions are made at corporate.

When the biggest consolidator gets at $50 a share less than it was worth at the top of consolidation, it says more about the future of the radio industry than anything else.

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