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Friday, November 9, 2007

Providence might abandon Clear Channel deal

Providence might abandon Clear Channel deal

Providence Equity Partners may abandon plans for a $1.2bn deal to buy 56 US television stations from Clear Channel Communications, in the latest example of a private equity takeover facing collapse because of the credit squeeze.

People familiar with the matter on Thursday said Providence was considering its options after the performance of the stations, mostly in medium-sized cities such as Memphis, Tennessee and Monterey, California, had sharply deteriorated. They said general market conditions were a factor in Providence’s thinking, but that specific factors such as the departure of several key people at the stations also played a part. Providence and Clear Channel did not comment.

The break-up fee for the deal is $45m, which Providence would have to pay if it wanted to walk away without reaching an accommodation with Clear Channel. Providence could also seek a renegotiation of the deal at a lower price, although the discount would have to be extremely big, given how much the business has suffered since the transaction was announced in April, said one person involved in the talks.

The deal would add to the $200bn tally of failed buy-outs so far this year, according to Dealogic. From Sallie Mae, to Harman International and Acxiom, a string of private equity deals signed in early 2007 have unravelled.

Clear Channel decided to sell the TV stations in an effort to streamline its business ahead of its $20bn sale to Bain Capital and Thomas H Lee Partners, the private equity groups. However, the side-deal with Providence was not a condition of the overall sale of the company, which is still pending and should be unaffected. Clear Channel shares were down 3.1 per cent to $34.80.

The move by Providence could affect the value of deals currently under way to sell TV stations. Rupert Murdoch’s News Corp is in the process of selling nine of its Fox TV stations. Mr Murdoch, chairman and chief executive of News Corp, said the sales process was still under way. He said he did not expect to get as much as a sale would have brought in six months ago, but that News Corp was prepared to take a haircut.

TV stations are increasingly being spun out of media companies. For example, EW Scripps plans to split into two publicly traded companies in response to shareholder unhappiness over its slow-growing newspaper business. Belo also plans to spin off its newspaper group from its stable of TV stations as it believes the two types of assets are no longer appealing to the same group of investors.

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