Radio: Prior Control

It’s Boy Kevin Martin’s FCC so it’s naïve for one to believe that he would abide by existing rules governing prior control.

Correct me if I’m wrong.

Wasn’t it illegal for BainCapital and Thomas H. Lee to seize operational direction at Clear Channel?

A couple of weeks back the FCC rubber stamped the $27.4 billion buyout by Bain/Lee.

But I don’t recollect any FCC-approved lease marketing arrangement covenant allowing the two private equity firms prior control of Clear Channel operations. Do you?

Bain/Lee sent a team from Boston to San Antonio to make some sense of the morass at Clear Channel world headquarters. Their visit would’ve stayed under the radar had it not been for Matthew Karnitschnig’s Wall Street Journal blog leak.

“Waves of panic” were the words Karnitschnig used to describe Bain and Lee’s fear that their Clear Channel deal was dying.

They were dispatched to “to help run the business,” Karnitschnig added.

It’s not uncommon for private equity firms to send it their troops to shore up a company for privatization. Cerberus did with United Rentals in their last-ditch attempt to save that deal.

But the Clear Channel deal is atypical. Bain and Lee hope to take control of federally licensed radio frequencies – and there are laws governing who controls them and when. The I’s have it. Interference is not just inappropriate – it’s illegal.

Is there anyone who believes the Bain/Lee team flew into San Antonio just to help John Hogan write his memo?

Thought so.

I’d have to believe that John Hogan didn’t need Bain/Capital’s expertise to know that the toilets are the only thing Clear Channel hasn’t flushed. That way they can look back on their broadcasting history to see what they accomplished – but I digress.

There are stringent FCC rules regarding “prior control.” I’ve been through this routine dozens of times. One can observe but not participate in operations.

Up to now the FCC’s been mum on the Bain/Lee’s prior control issue, hoping it’ll go away. And that’s the way Boy Kevin likes it. Keep the government out of government.

That aside, even Boy and his FCC 3-2 majority are short of the cosmetics needed to cover the grim fiscal impasse the radio industry faces.

Citadel stock is tanking. Cumulus’ go-private deal with Merrill-Lynch is iffy and it will take more than a whiffle haircut to advance that deal.

The large radio chains want the Clear Channel-Bain/Lee deal done – and without the haircut.

When Clear Channel fell into the lower 30’s, the Wall Street Journal revealed that the five banks Bain and Lee brought into this dubious deal were “eager to escape huge financing commitments.” That $500 million break-up fee could be the lesser of two evils. The banks involved, Citigroup, the Royal Bank of Scotland, Deutsche Bank, Credit Suisse and Morgan Stanley, can’t afford another disaster.

Then there’s fear that if the Clear Channel and Cumulus go-private deals go south – it’ll devalue all radio properties.

I’m on the side of fiscal responsibility in the radio industry.

I know that may not fashionable in some circles but there are those that understand multiples and ready to get back in the game when the price is right.

There’s a suburb not far from where I live. It’s one of the fastest growing cities in the U.S. - trading cattle and corn stalks for a bumper crop of malls and McMansions.

Now it appears that there’s a shift change with supply and demand. Most buying the McMansions now realize they can’t afford them.

We all know people like that. They buy it now and figure out how to pay for it later.

That's been the radio industry’s m.o. for the past decade.