To circumvent federal limits on radio ownership, investors trying to buy industry giant Clear Channel Communications Inc. (“Clear Channel”) plan to become passive owners in some radio stations they already own and divest others. According to their merger application submitted Friday, December 15, to the FCC, Thomas H. Lee Partners LP (“Lee”) and Bain Capital LLC (“Bain”) plan to insulate their interests in other radio companies in which they have a stake to avoid violating the agency’s limits on how many stations one company can own in a single market.
The FCC sets such limits by market size. A company may own no more than eight stations in the largest U.S. markets, such as Los Angeles, New York and Chicago, where at least 45 full-power radio stations operate. As markets get smaller, so do the number of stations a single owner may hold. Both Lee and Bain already have substantial radio investments that conflict with the FCC’s rules. Lee participated in a consortium of companies that acquired Univision Communications Inc. (“Univision”) for $13.7 billion in June through an entity called Broadcast Media Partners. Both Lee and Bain also have an interest in radio company Cumulus Media Inc. (“Cumulus”).
Clear Channel announced on November 16, that Lee and Bain will take a big portion of the company to help founder Lowry Mays and his family take the publicly traded company private for $26.7 billion. The Mays will invest with the buyout firms and remain involved in company operations. Clear Channel also plans to divest 448 radio stations in smaller cities and rural areas. The buyout shops do not specify what steps they will take to become passive owners in Univision and Cumulus, but telecommunications industry lawyers said one option could be stopping their participation in programming and management decisions. They are also likely to remove their representatives from the Univision and Cumulus boards and change any voting stock holdings to nonvoting.
In several markets, Clear Channel owns clusters of radio stations which, due to a new market definition for radio stations the FCC adopted in 2003, exceed the FCC’s local radio ownership limits. The agency grandfathered those outlets when they were revised but if Clear Channel or the stations are sold, the grandfather status expires and the new owner must obtain a waiver to keep the cluster intact. Overall, the grandfather protection covers 60 Clear Channel stations in 43 markets, according to Harold Feld, director of Washington-based public interest law firm Media Access Project. Roughly half of those stations are included in the 448 the company initially plans to divest, while buyout shops are purchasing the rest. Hence, roughly 30 more stations will be added to the “for-sale” list.
Although it can request them, Clear Channel is not seeking waivers to keep any of these grandfathered radio outlets. Instead, Clear Channel plans to divest those stations that have not been sold by the time the deal closes or create insulated divestiture trusts operated by independent trustees for stations. The trusts would be in place until the asset ultimately is sold.
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