In the middle of last week, Clear Channel had sued six banks for refusing to fund the protracted deal. The suits, filed in New York and Texas, was filed against Citigroup Inc., Morgan Stanley, Credit Suisse Group, Royal Bank of Scotland Group Plc, Deutsche Bank AG and Wachovia Corp. The huge deal was agreed in November 2006, when credit was easier to come by. However, a growing liquidity squeeze has now left some banks with multi-billion-dollar writedowns and severe financial constraints.
There has been lots of speculation about motives on both sides of this case. Some have said that banks are calculating that they can lose less money by walking away than by funding the deal. It’s a completely logical assumption on the surface when you consider a $550 million termination fee rather than a $3 billion market-to-market loss. As for the PE firms involved, they’ve invested far too much time and effort to walk away.
Nonetheless, Texas District Court Judge John Gabriel “found in favor of Clear Channel’s claim that irreparable harm would result if the banks were not immediately enjoined from tortuously interfering with the merger agreement,” Clear Channel said in a statement.
Of note is that Clear Channel is being represented in the Texas suit by Joe Jamail, an attorney who represented Penzoil in a suit against Texaco. The result was a jury award that essentially put Texaco in bankruptcy, so the banks should be more than a bit concerned about that one. —Daniel Primack