Three weeks ago Rush Limbaugh was the undisputed king of talk radio. Not only did he have the most stations and the best broadcast slots, the audiences he attracted meant that he could actually charge stations for his show. Most talk radio shows are provided to the stations for free, bartering space on the dial for a half share of the advertising slots.
Limbaugh's show is distributed by Premiere, which is in turn owned by Clear Channel, a company with a balance sheet that has been running red ink for some time as the outdoor advertising market went sour during the recession. The Motley Fool has an interesting analysis of Clear Channel's attractiveness as a stock pick, scoring the company a mere 2 out of 10 on its investment screen. Forbes reports that the company has $19.2 billion in debt.
But wait, it gets worse (or better).
Clear Channel's stock has just jumped after the company announced that it would borrow $2.2 billion to pay a special dividend of $6 to shareholders. Regular readers of this blog will remember the special dividend as one of the tricks used by Mitt Romney to make his fortune at Bain Capital. The crew would buy a company with money borrowed against the value of the company then borrow even more money to fund a special dividend that would mean a huge profit for them and likely bankruptcy for the company. And, hey, lookee here [Matt Koppenheffer, my emphasis]:
In a press release today, Clear Channel, which is largely controlled by Bain Capital, announced that it will be raising $2.2 billion via two debt offerings. The company will then turn around and use $2.17 billion of the proceeds to pay a $6.08-per-share special cash dividend to shareholders on record as of March 12. As the big jump in the stock suggests, the move was well received by investors.Forbes states that Bain Capital paid $17.2 billion to acquire the company. The huge debt load suggests that what Bain really did was to put in as little of their own money as possible and the rest makes up the lions share of that $19.2 billion in debt. Matt is not too impressed by this:
You'll have to excuse me if I throw up in my mouth just a little bit. Maybe I'm just a sissy when it comes to debt, but the idea of a company practically doubling its indebtedness in order to pay out a massive dividend just doesn't sit well with me.The only reason I can see that the stock would jump $1.50 on the news of the special dividend is a short squeeze. When a company pays a dividend, a short seller has to cover it. So an investor short 1,000 shares in Clear Channel would be facing a $6,000 charge to their account.
The Limbaugh crisis leaves Clear Channel paying $38 million a year for a broadcaster who has recently lost a good deal of his paid advertisers and has driven many advertisers away from talk radio completely. And this comes when their competitor, Cumulus Media Networks, is preparing to launch Mike Huckabee's new show. Cumulus owns many of Limbaugh's highest profile stations, and even before the Fluke crisis, the launch of the Huckabee show was seen as a move intended to recapture the younger and female listeners that Limbaugh has been hemorrhaging in recent years.
As anyone who has seen the Golf Channel knows, a channel does not need to attract a large audience if it attracts the right audience. Limbaugh attracts large numbers of the elderly white low income demographic that few advertisers are interested in. Huckabee attracts younger listeners and female listeners that advertisers are most interested in.
So lets recap, Clear Channel is losing a large slice of advertising revenue for a broadcaster they are paying $38 million a year. The company has a market cap of $5.5 billion, and $19 billion in debt. Despite a junk bond rating, the company is planning to borrow another $2.2 billion to pay a $2 billion dividend to Bain Capital. That will leave the company with a market cap of $3.3 billion, and $21.2 billion in debt with $4 billion due in 2014 and another $12 billion up to 2016.
And don't forget that in the increasingly likely case that these Vampire Capital tactics put Clear Channel into bankruptcy, Chapter 11 will allow the same management team who engineered it to stay in control and later find a new clutch of investors to bilk.
So the answer to my question in the subject line turns out to be "no": Mitt Romney's Bain capital looks like it was doing a fine job of destroying Clear Channel all on its own. But Limbaugh's bigotry and the advertiser boycott he brought on himself might well turn out to be the final straw.
Update: A lawsuit brought on behalf of the minority shareholders in Clear Channel Outdoor alleges that Clear Channel Corporation (holder of the 89% controlling interest in CCC) forced CCO to make a $1 billion loan to CCC on unfavorable terms.
Update 2: And there is an investigation into whether an unexplained 11% price movement in the CCO stock ahead of the news was caused by insiders front-running the trade.