Clear Channel (NYSE: CCU) has settled its differences with Providence Equity for the LBO firm to buy its TV properties. The dispute had made it to court. The original price was $1.2 billion, but that probably came down some.
Now that the fist fight is over, Wachovia (NYSE: WB) which was to supply $500 million for the deal, has walked out. It claims that, since the deal has changed, it has the right to withdraw. According to The Wall Street Journal "Wachovia has argued that even though the sale price is lower and the new agreement contains a larger equity component, it is a separate transaction from the one it originally agreed to fund."
It is a novel new theory. Since the equity component of the deal went up, Wachovia should be taking on less risk. There is a break-up fee of $45 million in the transaction, but the bank will probably argue that it will not pay that since the deal terms were altered.
The story is near-perfect example of the banks, encouraged by their legal advisers, turning their backs on customers to save their own skins. Even with the risk of a termination fee and potential suits from Providence and Clear Channel, Wachovia does not want to take on more LBO debt which it might have to write-down if it cannot be syndicated. New losses from the loans might force the bank to have to raise more money in the open market or from sovereign funds.
Even though it may have squeezed Wachovia to stay in the deal, its reputation as a class operation has taken a huge hit.
Douglas A. McIntyre
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