Clear Channel parties agree $17.9 billion deal

By Megan Davies

NEW YORK (Reuters) - The dispute over financing the leveraged buyout of U.S. radio operator Clear Channel Communications Inc. ended late Tuesday as the parties reached an agreement to settle the litigation and struck a new deal at a lower price of $17.9 billion.

It brings to an end court battles between the private equity buyers, Clear Channel, and the banks which agreed to finance the deal when lending was more lucrative. It also resuscitates a deal that has been in jeopardy for months.

The new deal will see Thomas H. Lee Partners and Bain Capital pay $36 a share to buy the radio operator, as opposed to the $39.20, or close to $20 billion, they agreed at the peak of the private equity boom last year.

"It's a great company and the economics of the business are great," Clear Channel Chief Executive Mark Mays told Reuters in an interview. "While you don't like to sue the people that lend you money, sometimes is it necessary. This was an equitable deal for everyone."

The new deal is expected to go to shareholder vote in August or September and close in the third quarter, Mays said.

Clear Channel struck the $39.20 a share deal after much wrangling since announcing it had hired Goldman Sachs to explore strategic options in October 2006.

Bain and THL beat out a rival consortium made up of Providence Equity Partners, Blackstone Group and Kohlberg Kravis Roberts and Co to buy Clear Channel for $37.60 a share.

But the winning bid ran into trouble when a small number of big shareholders said it undervalued the company. The buyout firms then offered $39, and later bumped that to the final price of $39.20.

Since that deal was struck, however, the market has changed drastically, with the cost of financing leveraged loans skyrocketing and the banks facing losses on the loans.

In March, THL and Bain filed complaints in New York and Texas against the six Wall Street banks -- Citigroup Inc, Morgan Stanley, Credit Suisse Group, Royal Bank of Scotland Group Plc, Deutsche Bank AG and Wachovia Corp -- to enforce their agreement to fund the buyout.

Central to the dispute was the hit the banks would take in funding the deal, given the deteriorated lending conditions.

They had agreed to provide $22.1 billion in financing for the deal for fees of $400 million, but according to the original suit filed by Bain and THL, the banks feared they would lose $2.7 billion after the market worsened.

Bain and THL argued in litigation that the banks tried to renegotiate the financing from long term to a short-term package and to change the terms so it would be unworkable in order to kill the deal.

The banks countered that the two sides were in talks when the buyers sued, which constrained further discussions.

As the parties worked on reaching an agreement on Tuesday, the trial began in New York State Court, after being adjourned from Monday morning.