The following article from today's Daily Variety provides some insight and rumours into the "real" reason for the deal, i.e. did Clear Channel approach Chancellor about an acquisition??
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Chancellor up for sale:
Clear Channel eyeing radio giant
By MARTIN PEERS, January 21, 1999
NEW YORK - Radio and TV broadcasting giant Chancellor Media stunned Wall Street by putting itself on the sales block Wednesday, apparently a sign that its controlling shareholder Hicks, Muse, Tate & Furst has suddenly lost faith in its broadcasting strategy.
Chancellor disclosed it had hired investment bank BT Alex Brown as a financial advisor to help review "strategic alternatives" to "maximize shareholder value," including "sale, merger or consolidation" of part or all of the company.
Sale of Chancellor, the biggest radio broadcaster in the U.S. by station count, would cost between $21 billion and $25 billion, a huge deal that only a few companies could afford. In addition to 465 radio stations, Chancellor has 13 network-affiliated TV stations as well as a major presence outdoor advertising business.
The consensus on Wall Street is that radio and TV broadcaster Clear Channel Communications is the only viable buyer of the entire company. Indeed, Clear Channel is thought to be keen on a deal, which would double its size and create a radio monster with almost 900 radio stations in every segment of the radio industry.
CBS-controlled Infinity Broadcasting, the other radio giant with plenty of money, would be locked out of the deal because both it and Chancellor have strong positions in most of the top 50 markets, meaning Infinity would have to divest much of the stations it acquired. Clear Channel CEO Lowry Mays did not return calls seeking comment and Infinity declined comment.
Aggressive growth
Most shocking to Wall Streeters about Wednesday's announcement is Chancellor's timing. In just the past couple of years Hicks, Muse has spent billions of dollars creating Chancellor through multiple mergers, including Evergreen Media, Viacom's radio station group, Lin Television and Capstar Broadcasting, with the aim of becoming dominant in both radio and TV broadcasting and outdoor advertising to enable cross-selling across all three media.
But some of the recent deals, notably the Lin and Capstar acquisitions, are yet to be completed. And Chancellor was still assembling a management team. Over the past year it had slowly weeded out execs from Evergreen who had stayed in operating control, announcing just a couple of weeks ago the departure of CFO Matt Devine and the hiring of a replacement, Thomas McMillin.
In a statement Wednesday, Chancellor CEO Jeff Marcus said the strategic review was prompted by the "substantial disparity between Chancellor's market valuation and those of its peers," regarded by most observers as Clear Channel and Infinity.
Indeed, both those companies have followed the same radio-television and outdoor strategy of Chancellor (although CBS split ownership of the TV stations from radio and outdoor when it spun off Infinity recently), and are more warmly regarded by investors.
Chancellor's stock price before Wednesday's announcement was a multiple of just 14.5 times estimated 1999 earnings before interest, taxes, depreciation and amortization. Both Infinity and Clear Channel trade on multiples of 22.4, according to Lehman Bros. analyst Tim Wallace.
Chancellor stock jumped $9.18 to $54.75 Wednesday, slightly narrowing the difference. Analysts estimate that at a price of $60 and including the company's $7.2 billion in debt, Chancellor would cost $21 billion. At a price of $75, the overall cost would be $25 billion. Even at the higher price, Chancellor would be selling at a lower multiple than Clear Channel, which would likely be a requirement for Clear Channel to do the deal.
Analysts attribute Chancellor's lower price to a range of factors, including investor hostility toward last summer's merger of Lin and Capstar into Chancellor. Hicks, Muse controlled both Lin and Capstar, so the deal was seen as raising conflicts for the leveraged buyout firm.
"Wall Street never came to a full value for Chancellor, which had to have been a tremendous frustration for the management team and Hicks, Muse," said Lehman's Tim Wallace. "Perhaps the changeover in management, (Chancellor's) high leverage and the relationship between Hicks, Muse and Chancellor/Capstar may have been somewhat of an overhang (for the price)."
Another analyst noted that Hicks, Muse was an impatient shareholder and that Chancellor's high debt load prevented it from doing more deals, thereby limiting the company's options. Hicks, Muse is "by its very definition a return-driven firm," said investment banker Gary Stevens, of Gary Stevens & Co. "The way you achieve that (return) is by selling assets, and I think in as much as the public has knocked the value down, if they feel their stock is trading at a significant discount, then a logical way out for them is to sell the entire business."
Some bankers speculated that Clear Channel has already made an offer for Chancellor and that Hicks, Muse subsequently began a formal sale process in case other buyers were prepared to pay more. Wall Streeters said Clear Channel CEO Lowry Mays was friendly with Marcus and that Mays' typical strategy is to become friendly with a target company and make informal suggestions of a deal.
Still, price could be an issue. Investment bankers said the shortage of viable buyers for the whole company meant a breakup of the company was an option, particularly as Chancellor has been assembled so recently that assets could be split off without major tax liabilities. Chancellor CEO Jeff Marcus was not available for comment, and Hicks, Muse execs did not return calls.
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