UPDATE 2-Clear Channel shareholders approve buyout

(Adds details, byline, background, quotes)

By Megan Davies

NEW YORK, Sept 25 (Reuters) - U.S. radio operator Clear Channel Communications Inc (CCU.N) said on Tuesday that shareholders approved a $39.20-a-share buyout offer from private equity firms Bain Capital Partners and Thomas H. Lee Partners, worth nearly $20 billion.

The company said that 73 percent of the total shares outstanding were voted in favor of the deal.

The deal faced a difficult hurdle because, under Texas law, holders of at least two-thirds of the San Antonio-based company's shares had to vote in favor of the transaction. Shareholders who failed to vote were counted as voting against the sale.

The initial $37.60 bid ran into some opposition last year. But some influential shareholders began supporting the deal after the bidders raised the price and offered the option to investors to take an ongoing stake in the company following the deal, known as "stub equity."

In addition, proxy advisory service Institutional Shareholder Services (ISS) reversed its opposition to the deal last week. Part of the reason for the reversal was the fall-off in leveraged buyouts amid turmoil in the debt markets, making it less likely such a deal could be struck again.

In an e-mail to employees after the vote result was announced, Clear Channel Chief Executive Mark Mays wrote that the company's next focus was getting the merger closed. The deal is awaiting approval from the Federal Communications Commission and the Department of Justice.

Those will "hopefully be granted in the next few months, putting the most likely merger completion date in December, although it could be somewhat before or after that timeframe," wrote Mays in the e-mail.

LENGTHY PROCESS

Mays said the takeover had been a "lengthy process."

The battle for Clear Channel had numerous twists since the company announced in October 2006 that it had hired Goldman Sachs Group Inc (GS.N) to help it evaluate strategic alternatives.

That provoked interest from a number of private equity players. In November, Bain and T.H. Lee beat out a rival consortium, including Providence Equity Partners, Blackstone Group [BG.UL] and Kohlberg Kravis Roberts and Co [KKR.UL], to buy Clear Channel for $37.60 a share.

But their bid ran into trouble when a small number of large shareholders, and ISS, said it undervalued the company.

The buyout firms then offered $39, and later $39.20, with the option of co-investing in the company.

The stub offered investors the opportunity to own 30 percent of the outstanding share capital after the restructuring. The shares of the new corporation would be registered with the U.S. Securities and Exchange Commission, but not listed on an exchange.

Offering shareholders the ability to participate in Clear Channel after the buyout through the proposed co-investment option was one way to appease investors who wanted to share in any improved growth.

Clear Channel said in a statement on Tuesday that preliminary results showed shareholders holding 67.3 million shares, or about 14 percent of shares outstanding, had elected to receive the stock consideration.

That was above a cap of 30.6 million shares, so shareholders will be entitled to receive only a proportionate allocation of shares rather than the full number for which they may have elected, the company said.

John Blackledge at JPMorgan wrote in a research note: "We expect the transaction to go through as is at $39.20 and do not expect any difficulties with financing or any competing bids to arise before closing."

Shares of Clear Channel were 4 cents higher to $36.80 in midday trading on the New York Stock Exchange on Tuesday. (Additional reporting by Jim Forsyth in San Antonio)