Providence says Clear Channel lawsuit "baseless"

By Megan Davies

NEW YORK (Reuters) - Private equity firm Providence Equity Partners said on Sunday a lawsuit brought by radio operator Clear Channel Communications Inc. (CCU.N: Quote, Profile, Research) to force it to complete a $1.2 billion deal was "baseless."

Marking the latest deal to turn nasty amid the credit crunch and downturn in the economy, Clear Channel filed a lawsuit Feb 15. in the Court of Chancery, Delaware, to force Providence to complete the deal to buy the radio operator's 56 television stations. The lawsuit is filed against "Newport," a company set up by Providence to make the acquisition.

This is not related to the $20 billion leveraged buyout of Clear Channel.

Clear Channel, being bought by private equity firms Thomas H. Lee Partners and Bain Capital Partners LLC, has previously said that the buyout, which last week received antitrust approval, is not conditional on the TV sale.

But it is unlikely to add confidence to investors already concerned that the $39.20-a-share buyout could be in jeopardy, evidenced by the discount Clear Channel's shares are trading at to the offer price. Its shares closed on Friday at $32.35.

The lawsuit relating to the Providence TV deal alleges that Newport's "refusal to consummate the transaction is a failure to comply with the terms of the agreement," according to a copy of the suit, obtained by Reuters. "Clear Channel is therefore entitled to an injunction restraining such failure and a decree of specific performance requiring Newport to comply with the agreement," the suit said.

Clear Channel had cautioned in November that Providence was considering withdrawing from the deal.

A Providence spokesman said in a statement on Sunday: "We are surprised and disappointed that Clear Channel would suddenly bring this baseless lawsuit as we were trying to work out a mutually acceptable arrangement in difficult market conditions."