Clear Channel board rejects new bid as vote nears

NEW YORK (Reuters) - Clear Channel Communications Inc. (CCU.N), the largest U.S. radio station operator, said late on Thursday it rejected a revised $19.6 billion bid from a private equity group, days before a crucial vote on the deal arrives.

The board said in a statement that recommending the bid would delay the date of a special meeting by up to 90 days, with no certainty the transaction would be approved by shareholders.

Bain Capital Partners and Thomas H. Lee Partners THL.UL originally made a $37.60-a-share bid to buy Clear Channel in November.

The bid ran into trouble when a small number of institutional shareholders indicated they would vote against it, arguing that it undervalued the company. In April, they increased the offer to $39 a share, but the shareholders still indicated opposition.

That, alongside a recommendation from influential proxy advisory service ISS to oppose the deal, meant the offer was in serious threat of being voted down at an upcoming vote scheduled for May 8, analysts previously said.

Late on Thursday, Clear Channel said in a statement it received a new proposal from the bidders to increase the offer to $39.20 a share to unaffiliated shareholders. The founding Mays family and Clear Channel board would receive the price they originally recommended of $37.60 a share.

The increased cash for shareholders was proposed to come from reducing the amount the Mays family and board received, rather than the private equity bidders increasing the amount they paid, several sources familiar with the situation said early on Friday.

The new offer also gave shareholders a choice between cash and stock in the surviving company as shareholders could take an interest in the privately owned company through owning a portion of up to 30 percent equity in Clear Channel.

Those sources added that the revised structure had been supported by, and was the result of cooperation with Highfields Capital Management LP, a significant shareholder originally opposed to the bid.

Fidelity had previously indicated it would vote against the deal, a source previously told Reuters. A source close to Fidelity and familiar with the matter said on Friday that its position was unchanged.

"Nothing's different. It's the same where we were," the source said on Friday.

In its rejection of the proposal Clear Channel said that "significant shareholders of the company have privately or publicly made known their opposition to the merger at $39 per share and their lack of interest in stub equity." Stub equity refers to shareholders in a public company taking an ongoing stake in the firm after it is taken private.

Clear Channel added that tabulated proxies received so far show a vote against the merger of more than the required one third of the outstanding shares necessary to defeat the merger proposal.

The Clear Channel deal faces a particularly difficult hurdle because under Texas law, two-thirds of the company's shares must approve the transaction, not just two-thirds of the votes cast. That means shareholders who fail to vote are counted as voting against the deal.

Fidelity was not immediately available for comment. Highfields declined comment.

Clear Channel shares rose 1.6 percent by late morning on Friday to $36.53.

(Additional reporting by Muralikumar Anantharaman in Boston)