The Sale of Clear Channel

Recently there has been speculation that Clear Channel is petitioning the FCC to allow letting groups own 10-12 stations per market and other remedies designed to further deregulate radio.

Clear Channel is owned by Thomas H. Lee Partners and Bain Capital – two investment banks.

They overpaid for Clear Channel at $24 billion. Later tried to get out of doing the deal and then, faced with the legal consequences, decided to go through with the purchase of radio’s largest consolidator.

Investment banks do not really own anything just to operate them.

They buy companies.

Leverage the debt.

Then turn around and sell what they bought for a profit.

When they can’t sell for a profit, these investment banks usually make fees – lots of them – so the process of selling off the individual parts can also be profitable. That is, they win even when they lose.

I believe Lee and Bain’s Clear Channel is no more ready to sell the company than, say, than Lew Dickey’s Cumulus Broadcasting is ready to start acquiring stations.

The tricky Lew Dickey knows that he will never get what he paid for his stations or his company. The age of consolidation has passed and while owners were making money they were wasting their assets – the people, the talent, management, sales ability – that could have made their investments grow in value.

Is the push to get the feds to further relax ownership limits a precursor to selling companies like Clear Channel?

Clear Channel is not worth what it was when Randy Michaels first put the stations together.

And while the argument has been bandied about that more monopoly – not less as in the merger of Sirius and XM Radio -- could be justified because radio doesn’t compete against radio any longer. It competes against all media.

Yes, Lee and Bain will exit someday.

Not today.

And they will do it with or without further relaxation of ownership rules. In fact, don’t be surprised if some stations will be sold off for spectrum space as the new media needs of cell phones and mobile devices gobble up spectrum.

You’ll note that Clear Channel continues to donate crummy AM stations to minority interests.

What a joke.

Give away properties the minority owners cannot possibly run profitably and take a tax write-off in doing so. You notice Clear Channel is not exactly giving away KISS in Los Angeles for a tax write-off.

The speculators are missing a bigger point.

There is an exit strategy developing right now, but it is the one being considered by Clear Channel employees.

Take a look at this email I received chronicling what some Clear Channel people are getting ready to do:

“My friend, along with many other employees in this cluster (in the Southwest), are all creating exit plans. They have goals to be out of there in the next 8 months. The reason? Past experiences and observations.

Although this market is meeting and passing its goals, which is never enough, the fourth quarter cometh.

When I say the sales department has met or exceeded their goals, what was that great classic "Nothin From Nothin Leaves Nothin?", you can do the math. The market has been down as much as 18%. CC lowers the rate to create volume, market goes up, sales has to go in and sell value, buyers say value, what value? In a nutshell they have increased there (sic) sales to meet their goal of 3% increase over this time last year.

I firmly believe two things. 1. they want to expand the number of stations allowed because they cannot sell the excess without taking a hit and 2. you will see significant reductions in work force by the end to the year. It is the Clear Channel way.

Everyone is still in denial. Both owners (CC) and the employees. The smart ones are going to bail”.

So we know that investment banks eventually sell that which they bought and usually they make money one way or the other.

The real damage could come as Clear Channel and other major consolidators lose the people they need to avoid further and continued shrinkage of revenues.

You’ll note even the rose-colored glasses of analysts are foggy these days.

People have come to understand that an old media business that has done virtually nothing but cut costs for 12 years is depleted and worth less than when the properties were assembled.

It reminds me of management guru Peter Drucker who keynoted one of my industry management seminars before his death. He told the audience of radio managers that it is the seller who makes out like a bandit in most company sales not the buyer.

Drucker’s words ring true today as we see radio pillaged by incompetent managers who under fear of losing their jobs were required to slice and dice a perfectly good live, local cash flow machine.

In essence the consolidators have effectively devalued their very own assets.

The sly Lowry Mays knew all of this.

And you'll notice Lowry got out in time.

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