The NEW Clear Channel Memo: "Cash and Consequences"

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: Clear Channel Communications is the beneficiary of a near-miracle: its buyout, once near death, came through with full funding from its investment banks. : That�s why Clear Channel is going to make sure nothing goes wrong now � and specifically, making sure that the company has more than enough cash on hand in case a lot of shareholders choose to take cash for their shares rather than use the stub equity option. : So, a couple of weeks ago, CFO Randall Mays has sent top executives a memo telling them to cut costs before the deal closes. That�s because, if enough shareholders demand cash, the biggest stockholders, including executives, would end up having to roll over their shares into stub equity in the private company. (It�s seen as an outside possibility, but, having come so far, Clear Channel doesn�t want to be caught flat-footed.) Here�s the risk: if Clear Channel finds itself without a healthy supply of cash on hand when the deal closes, those executives won�t be able to cash out their shares when Clear Channel�s deal to privatize finally closes � so the buyout won�t be as lucrative for them. A little responsibility now will prevent a lot of pain later. : �There is a certain level of cash which we will need to have at closing in order to insure that no one has to do anything that is not of their choosing,� writes Randall Mays in the memo. The board would prefer that rolling stock into stub equity �remain an option rather than a requirement,� he explains. : He also says any additional outlays before the deal�s closing will have to be funded with equity, not debt. The upshot is that the company�s beancounters are being �extremely judicious in any capital spend of any type. We also are going to be very closely monitoring cash generation and balances.� : The memo comes on top of a January memo from radio division head John Hogan, which also urged employees to cut out nonessential spending as the company struggled to close its privatization� back then, at $39.20 a share. Now, the price is set at $36. : But relief is in sight. �Post closing this will not be the case and we will go back to our normal procedures,� Mr. Mays writes. �So don�t infer anything in this other than there are timing issues with respect to capital before closing.� : endit : A slightly edited version of the memo is below; we only took out the last paragraph, which includes some small instructions to staffers. : From: Randall Mays : As all of you know we have now signed up the new Merger Agreement and we hope to close sometime during the third quarter. : I think as most of you also know by now, there are certain provisions in the Merger Agreement that make it extremely important for us to be as judicious with cash as we possibly can between now and closing. First, as part of the deal, Clear Channel shareholders will potentially be forced to roll a portion of their shares into the new transaction. It is the preference of our board that no one be forced to roll (everyone has the option to roll and the board would prefer that this remain an option rather than a requirement). There is a certain level of cash which we will need to have at closing in order to insure that no one has to do anything that is not of their choosing. : Additionally, the debt provided by the banks to fund the transaction was fixed at the time of signing the amendment to the merger agreement. Thus, any additional cash outlays between now and the deal closing, have to be funded 100% with equity. For those of you that have run levered return models, it is very difficult to make deals attractive when you have to fund them with 100% equity. Post closing this will not be the case and we will go back to our normal procedures so don�t infer anything in this other than there are timing issues with respect to capital before closing. : What does all that mean? As we look forward between now and closing this means that we will be extremely judicious in any capital spend of any type. We also are going to be very closely monitoring cash generation and balances. : � : Randall : (WSJ)

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