Clear Channel eases as Providence hauls lender to court; Russian news release sends BoNY sharply lower

By Paul A. Harris

St. Louis, Feb. 29 - Market watchers with a taste for the ironic ought to dial in the recent Clear Channel Communications Inc. news, an analyst from the media sector told Prospect News on Friday.

Providence Equity Partners is acquiring 56 television stations from Clear Channel.

Last week Wachovia Corp., Providence Equity's lender, filed a suit in North Carolina seeking to abandon its $500 million commitment to help finance the acquisition. Wachovia asserts that recent changes to the original transaction could indicate that there has been a material adverse effect on the business.

The change in question, according to the analyst, is a revision in the purchase agreement that lowers the price to $1.1 billion from $1.2 billion.

The irony, here, the analyst said, is that the change actually benefits Wachovia by lowering the price of the purchase.

Presumably Providence agrees.

On Thursday Providence sued Wachovia in the Delaware Chancery Court, seeking to force the bank to finance the revised purchase price.

Clear Channel (NYSE: CCU) shares closed Friday at $32.00, down $0.49, or 1.51%.

Any trading in Clear Channel shares needs to be seen in the context of the $19.5 billion LBO of the company by Bain Capital and Thomas H. Lee Partners, the analyst explained.

"There is still a pretty big gap between the current price and the $39.20 revised price agreed upon last June," the analyst said. The offer was revised upward from the original $37.60 per share.

"That's pretty big gap given that the Clear Channel LBO deal started a year ago last November.

When Prospect News suggested that the LBO deal is getting a little long in the tooth the analyst declined to take issue with the contention.

"Originally [the sponsors] thought they were getting it on the cheap," the source said.

"Later they maybe didn't feel that way.

"I cover this one and [Tribune Co.].

"Obviously since these deals were struck there have been a lot of changes in the economy and in the overall financial markets."

Ross to the rescue

Elsewhere on Friday, Assured Guaranty Ltd. announced that WL Ross & Co. LLC will purchase $250 million of common shares of Assured and provide a commitment to purchase up to $750 million of additional shares at the company's option.

The purchase price per share for the initial investment will be the higher of 97% of the average of $22.43 (Assured's NYSE closing price on Feb. 22, 2008) and the average NYSE closing price for Feb. 29 and March 3, or $21.76 (97% of $22.43).

A condition to closing the initial investment is that Wilbur Ross will be appointed to Assured's board of directors.

The additional $750 million commitment by WL Ross is available for one year from the date of the closing of the $250 million investment.

The price for subsequent investments will be 97% of the volume weighted average price of the company's common shares for the 15 trading days prior to notice of any subsequent investment.

The ability of Assured to make a mandatory draw on the $750 million commitment is subject to the subsequent investment price of Assured's common shares being no more than 17.5% above or below the price per common share of the initial investment.

Other tests for Assured's ability to draw upon the additional $750 million commitment are its maintenance of triple-A (stable) ratings for Assured Guaranty Corp. and double-A (stable) ratings for Assured Guaranty Re Ltd. from Standard & Poor's, Moody's Investors Service and Fitch and the absence of material adverse changes in the credit quality of the company's financial guaranty portfolio and investment portfolio from the most recently publicly disclosed information at the time of a drawdown.

Assured Guaranty (NYSE: AGO) shares were up 12.60% on Friday, closing at $25.65, $2.87 higher on the day, the highest they have traded since early January.

Pressed for comment, an analyst who covers the financial space wrote in an email message: "It will do well in time.

"I trust Wilbur."

From Russia, with spleen

As far as the analyst who covers the financial sector was concerned, Friday morning's "Big Story" was a press release from the Russian Federation regarding a Russian court ruling that the Federation terms a "setback" for Bank of New York.

"In what could only be described as a major defeat for the Bank of New York (NYSE: BK), the Court denied all requests for dismissal of Russia's $22.5 billion claim against the bank for money laundering (Case No. 40-24987/07-10-149)," stated the Friday press release.

"In a surprising move, Ivan Marisin, senior partner in the Moscow office of Clifford Chance, made a motion for dismissal of the Chief Judge for the Banking Division of the Moscow Arbitration Court who is presiding over the case along with two other judges on a three-judge panel. The court denied the motion to recuse the Chief Judge.

"The bank then sought to have the case thrown out by claiming that a Power of Attorney for the plaintiff's U.S. lawyer Steven C. Marks of Podhurst Orseck, P.A. was falsified. The court, however, ruled that the Power of Attorney is in fact authentic and therefore denied the bank's motion to dismiss the case. As a result, BoNY's lead attorney, Ivan Marisin of Clifford Chance, now faces a potential 2-year jail sentence if found guilty of criminal slander. As required by law, an investigation into the matter will be opened by the Prosecutor General's office. The next hearing will be held on April 7, 2008. The judge made it clear that the case will move forward without further delay and be tried on the merits.

"Unfortunately for the BoNY, despite its public statements that repeatedly characterize the lawsuit as 'totally without merit, if not frivolous,' a closer examination of Russia's legal claim against the Bank of New York reveals a formidable case," the press release continued. "A quick review of the facts shows that BoNY already admitted and accepted responsibility for the crime of money laundering. In November of 2005, BoNY entered into a Non-Prosecution Agreement with the U.S. Attorney's Offices for the Eastern and Southern Districts of New York in which it acknowledged responsibility for its conduct and agreed to pay $38 million in penalties and victim compensation.

"As explained in a press release issued by the United States Attorneys prosecuting the case, 'BoNY has accepted responsibility for its criminal conduct, and its chairman of the board of directors has signed a statement admitting the criminal conduct in detail.'

"BoNY has since tried to redefine the scope and extent of its admission by claiming that the bank itself never admitted to criminal conduct, but merely to 'the criminal conduct of its employees.' This parsing of words simply does not work. The actions (criminal or otherwise) of a corporate entity are nothing more than the culmination of the actions of its employees. Under well- established U.S. law, BoNY is responsible and legally liable for the admitted criminal conduct of its officers acting within the scope of their employment and/or independently for its failure to properly supervise and prevent the laundering of billions of dollars out of the Russian Federation. In fact, any attempt to publicly make such an erroneous distinction may put BoNY in direct violation of its Non-Prosecution Agreement with United States Attorney's Office and may subject the bank to the reopening of criminal charges in accordance with sub-section 18 of that agreement."

The Russian Federation goes on to assert in the release that "Despite common misconceptions and BoNY's public assertions, Russian judgments are fully enforceable in most jurisdictions around the world where BoNY has assets, including the United States."

The release closes with the statement, "BoNY has consistently maintained that the Russian lawsuit is 'totally without merit, if not frivolous.' The Federation, of course, disagrees and intends to continue to pursue its claims to verdict and, if successful, collection. The simple fact is that only two conditions need to be met for this lawsuit to have serious financial consequences. The first is that a Russian verdict is handed down ordering the bank to pay billions in damages. The second is the successful enforcement and collection of any Russian judgment. In light of BoNY's admitted responsibility, the Federation understandably remains confident as to both issues."

Bank of New York shares significantly underperformed all the major U.S. indexes on Friday, dropping by 4.98%, or $2.30 per share, to close at $43.87.

The major U.S. indexes, meanwhile, each lost more than 2.5% on the day.

The S&P 500 gave up 2.71%, or 37.05, ending at 1,330.63.

The Nasdaq lost 2.58%, dropping 60.08. It went out at 2,271.48.

The Dow Jones Industrial Average, meanwhile, closed 2.51% lower, giving up 315.79 to close at 12,266.39.

The price of power

Early Friday morning a special situations equities analyst informed Prospect News, via email, that the Albany Times Union had reported that U.S. Senator Charles Schumer is calling on Iberdrola SA to set up a special trust fund to protect consumers from rate spikes if it is successful in acquiring Energy East Corp. in a $4.5 billion deal.

A Schumer spokesman said the fund would be between $1 billion and $2 billion.

The news was something of a puzzler for one analyst who covers the electrical utility space.

"Prices are rising for electricity," the analyst said. "Commodity prices are up. Coal is up sharply over the past few months.

"As commodity prices rise they will push electricity prices up."

The analyst does not look for Schumer's call for an escrow fund to materially impact the merger.

However the deal still needs to clear a novel regulatory hurdle in New York, in order to happen, the analyst said.

The New York Public Service Commission has petitioned an administrative law judge to indefinitely postpone the proposed acquisition because of concerns that Iberdrola itself may be the subject of a hostile takeover bid from some larger European utilities.

The analyst who covers the electric utilities space said that there is plenty of precedent for foreign companies acquiring U.S. utilities.

The source recalled that U.K.-based National Grid Co. owns utility and distribution companies in Rhode Island and Massachusetts. And more recently National Grid bought Niagara Mohawk Power in upstate New York.

The analyst added that E.ON, a German infrastructure company, owns Louisville Gas & Electric.

The source also notes that a consortium of Australian investors led by Sydney-based investment bank, Macquarie Bank Ltd., owns Duquesne Light Holdings, in Pittsburgh.

"There is clearly a history of foreign companies owning U.S. utilities," the analyst said.

"And there is precedent within New York."

However, the source added, the issue of Iberdrola, the acquiring company, being the possible subject of a takeover by larger European utilities, is novel to the Energy East case.

On Friday Energy East (NYSE: EAS) shares dropped by 0.71%, or $0.19 per share, to close at $26.65.

Meanwhile Iberdrola's shares lost 2.75%, closing €0.27 lower at €9.54.

The analyst told Prospect News that the present Energy East share price doesn't indicate anything about the likelihood that the deal will clear its regulatory hurdles, and get done.

"The stock price is not likely to move toward the takeout price until just before the acquisition takes place," the analyst said.

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