Radio, TV and billboard giant Clear Channel Communications announced yesterday one of the largest, if not the largest, buyout in the media and entertainment industry’s history. Private equity firms Thomas H. Lee Partners and Bain Capital Partners agreed to buy the traditional media conglomerate in a deal valued at $26.7 billion - $18.7 billion in cash plus $8.0 billion in debt assumption.
The New York Times’ Andrew Ross Sorkin and Peter Edmonston have this piece today about whether the mega-deal, and the general trend of private equity firms purchasing traditional media companies, raises any red flags in terms of media ownership issues.
Although Sorkin and Edmonston don’t go into this level of detail, the big concern is whether these private equity firms, which are buying the old media companies as investments not for growth but for the cash they throw off, can be considered as holding “cognizable interests” in the broadcasting companies they buy under the FCC’s ownership rule. These rules limit just how many broadcast stations any “cognizable” owner may have in a given market.
As it turns out, Thomas H. Lee Partners is part of the consortium that bought Spanish-language broadcasting company Univision for $12 billion and Bain, Thomas H. Lee and another private equity firm, the Blackstone Group are investors in Cumulus Media Partners, which bought the radio broadcasting business of Susquehanna Pfaltzgraff in May for $1.2 billion.
So, Thomas H. Lee, at least, will probably end up with ownership interests in TV and radio broadcast stations that bump up against, if not exceed, the FCC ownership caps in some markets. But, is this a problem?
Private equity buyouts of broadcast stations (and newspapers, for that matter, which are covered in the Commission’s cross-ownership rules) are such new phenomena that no one really knows. In 1999, the FCC modified its rules regarding equity or debt owners of media properties so that a “cognizable” ownership interest is recognized when the equity or debt owners can exert “significant influence” over the media companies’ operations.
Thomas H. Lee, Bain, Blackstone and other private equity owners are likely to say they plan to remain hands-off in terms of the companies’ operations, and therefore, their ownership interests shouldn’t apply to the local market limits. These firms, after all, are looking to extract whatever cash they can out of declining growth media businesses and don’t aim to reinvent the wheel.
One possible problem: when the FCC revamped its ownership attribution rules, its main concern was to ferret out cognizable ownership interests particularly as they applied to program suppliers. Thomas H. Lee Partners and Bain are part of a private investor group that controls Warner Music, and Warner Music is a big supplier to Clear Channel Communications.
Cynthia Brumfield at 8:57 AM|Comments(0)
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