Until The Bitter End

BusinessWeek is reporting that Bain Capital and Thomas H. Lee Partners won the Clear Channel auction only after its competition “walked away from a bidding war.” BusinessWeek is wrong.

The claim is part of an article that features Tom Hicks, an LBO pioneer who currently is investing in both private equity and real estate deals via a family vehicle called Hicks Holdings. Specifically, the piece argues that the next generation of oversized LBO returns may come from the middle-markets, rather than from the mega-markets. It reads, in part:

“Earlier this year, Hicks and a group of investors that included Blackstone, KKR and others walked away from a bidding war for radio and advertising company Clear Channel Communications. Thomas H. Lee and Bain Capital Partners ended up buying Clear Channel for $18.7 billion and the assumption of $8 billion in debt. ‘The Clear Channel deal came down to who was willing to accept the lowest equity return. I think they are looking at a return in the high teens,’ Hicks says.”

Credit to BusinessWeek for being the first to report that Hicks was part of the losing bid (which also included Providence Equity Partners), but that’s just what it was: A losing bid. Sources close to both the winning and losing consortia insist that Blackstone, KKR, etc. were in the Clear Channel process until the very end. They simply valued the company lower than did Bain and TH Lee.

It also is important to note that differing valuations do not necessarily mean that the high bidder “was willing to accept the lowest equity return,” as Hicks suggests. For example, isn’t it possible that the high bidder’s due diligence uncovered some operational inefficiencies that were not identified during the losing bidder’s due diligence? Or perhaps the opposite scenario, whereby the lower bidder saw pitfalls that were not apparent to the higher bidder? Moreover, wouldn’t each side have different post-acquisition gameplans, including different financial and/or tax structures?

I do not know why Hicks said what he said about walking away from the table, but yesterday put in a call to his PR rep to ask. No word back yet. One possibility is that Hicks Holdings left the consortium prior to Clear Channel’s final decision, but I am certain that Blackstone, KKR and Providence were involved until the moment Bain and TH Lee learned that they had won.