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Little Clarity on Clear Channel’s Future

It’s been a trying time for managers at Clear Channel Communications (CCU) (CCU), the nation’s largest radio broadcaster. A nearly-three year, $4.3 billion share buyback has failed to goose the stock price, and a major experiment to sell shorter advertising blocs - dubbed “less is more” - remains a work in progress with no clear sign of success. Meanwhile, millions of Americans fiddle with hot-selling iPods and new satellite radio gadgets, as traditional broadcasters grumble that the Street has little clue how to value their shares.

All of which has made the simmering talk of a private equity buyout of the San Antonio-based company appear more likely. The stock jumped 10% last week when Clear Channel confirmed media reports that it had hired Goldman Sachs Group (GS) to help explore options. The Wall Street Journal reported that at least two groups of private equity players are exploring a bid for the company: one consisting of Providence Equity Partners Inc., Blackstone Group LP and Kohlberg Kravis Roberts & Co. and the other of Thomas H. Lee Partners LP with Texas Pacific Group and Bain Capital LLC. A third, Carlyle Group LLC and Apollo Management LP, may also be interested, the newspaper reported Oct. 30, citing people familiar with their plans. Speculation also grew that the company’s founding family, which owns a 7% stake, may also try to acquire Clear Channel and take it private.

The surprise notice Oct. 25 prompted the company to push its earnings release forward to Oct. 30, when it reported a 9% dip in net income to $185.9 million, or 38 cents a share from $205.5 million (38 cents EPS) a year ago. That was a penny better than analysts had expected, according to a consensus estimate by Thomson Financial. Sales rose to $1.79 billion from $1.68 billion in the same quarter of 2005, with radio revenue up 5%.

Morningstar analyst Michael Corty saw that as significant because Clear Channel, through the “less is more” campaign, has been trying to sell 15- and 30-second spots in lieu of full-minute ads for nearly the same price, contending that longer advertising breaks tuned out listeners. The company did not discuss the progress of any sale in its earnings release or conference call on Monday.

Clear Channel shares have suffered just like most of its radio competitors, and are down 20% since March 2004 when it commenced its enormous share-repurchase program, trailing the S&P 500 index by 23% in the same period. The company has bought back 131 million shares since 2004. “It is understandable that management is frustrated with this underperformance and is looking to make changes that would reverse this trend,” Marci Ryvicker, an analyst with Wachovia Capital Markets LLC, said in an Oct. 25 research report.

Clear Channel shares fell 0.7% to close at $34.47 Oct. 30 on the New York Stock Exchange, near the 52-week high of $35.55 reached last week on the speculation of a sale.

Even if no private equity or family-led deal comes to fruition, some analysts see a chance the company could fully spin off its Clear Channel Outdoor, S&P analyst Tuna Amobi wrote in an Oct. 30 note to clients. (S&P, like BusinessWeek, is owned by the McGraw Hill Companies.) Clear Channel owns 90% of Outdoor, which sells advertising on billboards, street furniture and mass transit systems. Amobi expects “strong interest from several private consortia” with initial bids in coming weeks. He raised his target price on the stock from $32 to $37 because of the auction.

Radio investors will want to stay tuned to Clear Channel – this is a company whose public days may well be numbered.

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