The credit crunch claimed another victim Wednesday as Clear Channel's ccu long-planned, $19.5 billion offer to take itself private appeared ready to crumple.
The No. 1 radio company and its equity partners, Bain Capital and Thomas H. Lee Partners, sued the bank consortium lined up to finance the deal after they failed to reach agreement on terms.
"It seems clear that lenders' remorse set in when credit markets worsened," Bain and Lee said in a statement. "Now, they are trying to walk away from their commitment letter, which clearly states that they bear all the risk that conditions in the debt markets might change."
Clear Channel, in a Texas state court, charged Citigroup, Morgan Stanley, Credit Suisse, RBS, Wachovia and Deutsche Bank with engaging in "tortious interference" with the deal. The equity firms are suing in New York's Supreme Court for breach of contract. The plaintiffs are asking for unspecified damages that could exceed the $26 billion total cost of the deal.
"The financial risk to the banks in this suit dwarfs any risk they think they have in funding the debt," Clear Channel CEO Mark Mays said in a statement.
The pact expires June 12. If it collapses, Clear Channel is entitled to a termination fee of up to $600 million.
Clear Channel will be represented in Texas by Joe Jamail, a lawyer who became a billionaire after he helped Pennzoil win a precedent-setting suit in the 1980s against Texaco for interfering with Pennzoil's deal to acquire Getty Oil.
Citigroup did not respond to a call for comment. It told Reuters in an e-mail that the banks denied the charge and had made a financing offer that was "fully consistent and compliant" with their commitment to the deal.
Clear Channel shareholders likely will be the big losers if there's no resolution.
The deal, struck in late 2006, first called for them to get $37.60 a share, and the last offer of $39.20 is what gave the deal a $19.5 billion price tag.
"There's no way that $37.60 would be today's price," says Sanford C. Bernstein analyst Michael Nathanson. "In a slowing economy with fears of recession, you'll have weak ad growth. And the (radio) business is losing ad dollars to other media," including the Internet.
Clear Channel shares fell 17%, to $26.92, on Wednesday after The Wall Street Journal reported the deal was in jeopardy. The stock rebounded 8% in after-hours trading on news of the lawsuits.
Bain and Lee say that the banks tried to lessen the risk that they might be unable to syndicate the $22 billion they had committed to the deal. They insisted on offering bridge financing for only three years, not the six they had originally committed.