Lee & Bain's New Blueprint for Clear Channel

Tomorrow is Inauguration Day, an historic day when the nation's first African-American President takes office in the United States.

It could also be the day Clear Channel inaugurates its massive personnel cutback strategy.

Some think Clear Channel may do it on Tuesday under the cover of all the publicity of Barack Obama taking office. After all, who will miss hundreds or even thousands of employees as they get their pink slips on the same day as the inauguration.

One thing is for sure. If Clear Channel chooses Tuesday it won't surprise anyone. No company, in my opinion, has taken the low road as often as they have. It would be fitting.

You've heard a lot about the morphing of Clear Channel into a veritable shoe store -- not a group of radio stations.

I've been reading a book written by Orit Gadiesh and Hugh Mac Arthur -- both of Bain & Company, one of the two principal buyout partners in the Clear Channel acquisition. It is called Lessons From Private Equity Any Company Can Use and it is part of the Harvard Business Press "Memo to the CEO" series.

If you really want a guide to understanding what Clear Channel is up to, it's all right there written as an academic pursuit for Harvard.

The book gives a deeper understanding of how this clueless private equity group thinks and why as I have reluctantly been saying -- it's all over. Forget the fat lady singing. PE firms laid her off a long time ago.

What's in this little handbook is very revealing and helps explain the strategy Lee Capital Partners and Bain & Company are ready to implement at Clear Channel.

Define the full potential of your company. The target is increased equity value. Getting there requires strategic due diligence and the pursuit of a few core issues. This helps the radio industry to get its head out of the clouds and back to reality. Lee & Bain don't care about anything other than increasing equity value. Not the pie in the sky values you and I hold as standards for good broadcasting. And if you take it straight from their "memo", the pursuit of a few core issues is what we're all going to see shortly.

Develop a blueprint for change...how to turn your handful of initiatives into results, choreographing actions from a standing start to the finish line. Lee & Bain are so over Less Is More -- that was John Slogan Hogan trying to be a radio group head. What Lee & Bain will be revealing shortly is a well thought out plan that their people are handing down to Hogan to implement. Hogan, you may remember, was retained by the buyout group in a five-year contract. He's participating in the genocide of radio to save his neck.

• Accelerate performance. This step entails molding the organization to the blueprint, implementing a rigorous program, and monitoring a few key metrics. Can you see how Clear Channel's actions over the past six months have cooperated with the PE firms inevitable conclusion? Continuous firings. Combining workload and giving fewer people more responsibilities. Duplicating programs and distributing them to eliminate local on-air talent. The next logical step involves programming and sales and if they don't drop the other shoe by tomorrow, I'll then suggest what I think that accelerated performance might be.

• Harness the talent. This discipline requires creating the right incentives for managers to think and act like owners, and assembling a decisive and efficient board.
Translation: get your yes men in place and make sure your board of directors does not have an original thought of its own. The arrogance with which this book is written is consistent with the arrogance we are witnessing in the demise of Clear Channel. Obviously, the Bain authors are using the term "talent" interchangeably with "minions". You may recall that a number of months ago, after the takeover, Lee & Bain signed its "talent", the suck ups who sold out their industry and fellow employees even while these top executives were laying people off -- forgive me, I mean firing them.

• Make equity sweat. The challenge is to embrace LBO economics. This stage calls for managing working capital aggressively, disciplining capital expenditures and working the balance sheet hard
. So that's what Lee & Bain were up to. All this time I thought they were trying to make their employees sweat and all they wanted to do was manage the money aggressively. They are saying here that nothing gets in the way of working the balance sheet. Not people. Not history. Not the marketplace. Not advertisers. These PE know-it-alls are going to stick to their "hot clock" and the hell with everything else.

• Foster a results-oriented mind-set. This means making PE disciplines part of a corporation's culture and creating a repeatable formula for achieving results. Talk about format radio -- that's what you're going to see. Cost-cutting. Economies of scale that we never dreamed possible -- one jock per format, per daypart on as many Clear Channel stations as possible rendering the group Repeater Radio.

Now you know more than most folks about what is going to happen over the next few days at the new Clear Channel. It's out there in academia for all to read.

It's not about excellence.

Not about innovation.

Not even about sales superiority -- watch all the salespeople they will cut loose.

It's about a repeatable formula for cleaning up the bottom line of a failed company they couldn't get out of buying in an industry of not ready for primetime players.

Here's what I think is going to happen. Up until now I've called a lot of what is developing at Clear Channel -- and remember as Clear Channel goes, so everyone else goes -- out of business.

My predictions, then:

1. Lee & Bain are going to eat this buyout. You and I know they are destroying the company in order to follow their "brilliant" buyout blueprint. What they can't fathom is what I scream about all day. The next generation has been lost to radio. The digital frontier is where the growth will be -- not terrestrial or satellite radio. Understanding generational media will be more important than understanding how to make equity sweat.

2. Once they realize that their assets will be worth less every six months, you'll see Lee & Bain look to make further cuts while they remain in denial.

3. When the poor numbers kick in -- and even now there are brokers who report that the value of a radio station is at least 25% less than previously -- they'll panic into plan B. By the way, don't you love how brokers who are selling no radio stations (no comps) can project only a 25% decrease in station value? My God, it's as if they make their money by selling stations at a higher price. Wink/wink.

4. This buyout duo will then sell the parts off to try and recoup some of the losses. Even suckers for radio like Sam Zell and Randy Michaels are no longer in a position to buy back in. Zell will be lucky to get out of the newspaper business in one piece. So Lee & Bain in panic means selling stations -- not just under value the way Les Moonves did in Minneapolis recently. No, Lee & Bain will sell for next to nothing. The real estate has some value and they own a lot of it. Also the outdoor business might cover a multitude of strategic financial sins they committed. Think 50% or more off the price for which the stations were originally required by Clear Channel.

So, there -- stations will be made available at reasonable if not cheap prices. Thanks a lot, Lee & Bain. You ruin the business then sell off what you ruined to people who do care about the programming, the audience, the advertisers, the people.

On the eve of destruction I found the insights in Lessons From Private Equity Any Company Can Use both upsetting and reassuring.

You see, I have a hard time dealing with people who would so blatantly damage an industry we love. Maybe this explains some of it -- even if it doesn't make us feel any better.

But wait.

The most telling punch in the gut is on page 49 about Private Equity (PE) and I saved it for last so you can either get sick, laugh or cry.

The emphasis in italics is theirs, not mine.

"...the PE's blueprint is very different from the traditional company's strategic planning binders, which often tend to focus on "what we want to be" at the expense of "how we are going to deliver". The PE's blueprint is only about action. It is about executing on the initiatives and about how one dollar becomes several dollars within a specific time period".



It is all over.

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