LEX Now it gets interesting. The leveraged buy-out of Clear Channel, a drama still unfolding some 16 months after it was originally announced, is heading for the courts.
It is not the first major LBO to end in litigation. But the nature of this particular battle is very unusual. Clear Channel, together with its prospective private equity buyers, Bain Capital and Thomas H Lee, has gone after the banks that are supposed to finance the bulk of the deal. In a nutshell, Clear Channel and the sponsors claim the banks are derailing the deal by imposing shorter-term financing at the 11th-hour. For their part, the banks say they are honouring the obligations given in their original commitment letter.
This is the first instance in which the target has gone directly after the banks, rather than the sponsors, when a deal has unravelled. That is not the only striking aspect of the case. In claiming “tortious interference” against the banks in a Texas court, Clear Channel has raised the ghost of Pennzoil versus Texaco, a landmark 1980s case – even hiring the same lawyer who represented the plaintiff. In that case, Pennzoil was awarded billions of dollars in damages.
Clear Channel’s own stock price, having sunk well below the $39.20-per-share buy-out offer, provides a stark indication of how times have changed since the original deal was announced. It would be understandable if both the private equity sponsors and the banks wanted to pull out.
To do so, however, would be to take responsibility for the penalties involved, such as the reverse break-up fee of up to $600m. Both the sponsors and the banks continue to profess their commitment to proceed.
Tactically, at least, it makes sense for all sides to ratchet up the pressure. That it has come to this, however, is testament to how much the LBO market has soured.
