Clear Channel (CCU) announced that private-equity shop Providence Equity Partners wants to renegotiate its deal to buy 56 CCU local TV stations, which it agreed to in April. Clear Channel is making like it doesn’t care, but it should: It was getting a great deal. Meanwhile, it’s no mystery why Providence wants to renegotiate: Because it must have been drunk when it signed in the first place.
Local television is a challenged business with a hazy future. So when Providence agreed to pay $1.2 billion–more than 15 times cash flow–for Clear Channel’s 56 TV stations in April, the market went bananas.
Dow Jones soon called local television the “darling of the media sector.” Indie station groups like LIN TV and Nextar put their station groups on the block. News Corp. started shopping nine stations. But after few buyers as
crazy free-spending as Providence emerged, things went sour. No one showed up to buy LIN and Nextar. News Corp., which put its stations on the block in June, is closing the bidding on Friday.
Now, April is looking like the top of the market for local TV stations, and Providence doesn’t want to get burned. The credit markets have tightened, likely forcing Providence to put more equity into the deal than they’d like. Add to that, the local TV business is facing increased uncertainty:
- The housing slump has hit local advertising.
- Political spending, while robust now, could trail off if the two parties lock up nominees early.
- Even strong political ads might not offset the impact of a recession or a prolonged writer’s strike.
- Fox hasn’t yet renewed its affiliation deal with Clear Channel (which owns 8 Fox affiliates), and could demand higher reverse compensation to renew.
- Local TV is quickly losing local exclusivity over network content to broadband.
- Even News Corp.’s Rupert Murdoch acknowledged that next year could be a tough one for advertising.
Ironically, after it agreed to the $1.2 purchase price, Providence put itself ahead of the game by selling two money-losing CCU stations for robust multiples. But now that valuations on TV stations are down to 12x to 13x, Providence will be paying a hefty premium to market value. And in private equity, of course, a deal’s not a deal.