Professor Elam

Media companies have been battered by the rapid change in technology.  I noted that NBC is radically cutting expenses.  Terrestrial radio is losing customers to iPod, satellite radio, and internet broadcasts.  So why is Mays Group  considering a buyout of Clear Channel?  CCU has hired Goldman Sachs as an adviser.  And trust me at GS rates they better do something!  Scuttlebutt has it that the current chairman Mays may attempt a leveraged buyout of CCU. The stock has run up as investors apprently think the deal will happen at a higher price.  But a Merrill analyst says this makes no sense.  Who is right?

I have noted that mergers and acquisitions are inclusive events that happen at market tops.  Thus Kinder Morgan, HCA, and other companies are being taken private by loading up on debt via junk bonds.  I noted in Gluttons as the Gate that some of these deals are crafted to return money immeditaely to the buyer, and worse, more debt is laid on to deny assets to other creditors if the company is forced into bankruptcy.  So what’s going on here, is Mays making a good business decision or thinking of a backdoor way to acquire more stations and not pay for them if the debt load proves too high. 

Click on this chart to see how the rumor of GS involvement affected the stock price. Note the big jump in volume at the bottom in the vertical bars. Remember it is volume that ultimately determines stock price direction.   Is it any wonder GS always has a former partner in a Presidential cabinet. Yes presidents come and go but Goldman is a forever presence providing both Clinton’s Sec of Tsy as well as Bush’s current one.

DLE