Fool.com: Clear Channel Tunes In to SFX (Fool Plate Special) February 29, 2000

FOOL PLATE SPECIAL
An Investment Opinion

Clear Channel Tunes In to SFX

By Dave Marino-Nachison (TMF Braden)
February 29, 2000

Radio station owner and outside advertising company Clear Channel Communications (NYSE: CCU) this morning announced an agreement to buy concert and event developer and promoter SFX Entertainment (NYSE: SFX) in a deal valuing SFX at about $4.4 billion, including the assumption of $1.1 billion of debt net of cash, based on last night's closing prices.

Under the terms of the agreement, holders of SFX's Class A shares will get 0.6 shares of Clear Channel stock for each of their company's stubs; that ratio valued SFX stock at about $45.11, a 19% premium to yesterday's final tally. The deal is expected to close early in the third quarter. Predictably, SFX shares advanced and Clear Channel stock retreated this morning as investors looked to make a few dollars on the arbitrage play.

Looking past the closing of the deal, though, investors must consider whether the combined company will offer them a better deal than the companies have individually over the last several years. Both stocks have outperformed the S&P 500 Index significantly since 1998. SFX, led by Chairman Robert Sillerman, has grown rapidly through acquisition -- which has garnered it some attention from short sellers as rollups often will -- and Clear Channel has done the same of late with leading U.S. radio company AMFM (NYSE: AFM) set to be folded in.

Clear Channel's plan is to integrate its radio and television resources and billboards with SFX's stewardship of live entertainment venues and promotion/production operations -- which handle popular music concerts as well as theatrical shows, family entertainment, and specialized sports shows -- to profitable effect. "This transaction allows Clear Channel, through SFX, to gain immediate leadership in the highly attractive live entertainment segment," Clear Channel Chairman and CEO Lowry Mays said in a statement, "while taking advantage of the natural relationship between radio and live music events."

"It leverages the marketing and promotional strength of Clear Channel's broadcasting and outdoor advertising platforms and adds a new component to the marketing solutions," Mays continued, "which Clear Channel can provide to its customers to help them sell their products. Additionally, it creates an exceptional platform for Clear Channel to pursue initiatives relating to the Internet and music."

That last comment is significant in part because of a comment published in the most recent issue of Business Week magazine's "Inside Wall Street" column, which suggested that SFX's website gets more than 1 million hits weekly without promotion. Robertson Stephens analyst Harry Curtis told Gene Marcial that continued growth of the website might lead to it being spun off in some form this year, and today's Clear Channel news could certainly be a catalyst for expanded content offerings.

Then again, Business Week also quoted an unnamed investment banker as saying CBS (NYSE: CBS) may have been interested in buying a stake in SFX: "'These talks could lead to a buyout," the banker said, "but Sillerman won't sell for less than $70." Source-check time.

Addendum: Alert reader Jack Messmer, executive editor of the Radio Business Report, noted in an e-mail that Sillerman did in fact get his asking price -- for his class B shares. Those will be exchanged 1-for-1 for Clear Channel shares, valued as of last night at $75 3/16 each. As of the company's most recent annual report, Sillerman owned about 90% of the class B shares or more than $1.1 billion's worth. CEO Michael Ferrel held the rest.

Related Links: