Filed under: Deals, Law, Clear Channel Commun (CCU), Wachovia Corp (WB)
Clear Channel (NYSE: CCU) has settled its problems with selling its Television operations to Providence Equity. Now one of the banks backing the deal, Wachovia (NYSE: WB), wants out.
According to The Wall Street Journal, “Wachovia has argued that although the sale price is lower and the new agreement contains a larger equity component, it is a separate transaction from the one it originally concurred to fund.” If banks keep walking away from their private equity clients, they won’t have any left.
Wachovia was going to put $500 million into the deal. Without the cash, the deal may fail. It is possible that Wachovia would have to pay a break-up fee but the bank would argue that, because the deal had changed, it does not even owe that.
Banks are willing to risk the one-time payout of a break-up instead of taking LBO debt onto their balance sheets and then having to write it off if they can’t resell it.
The new banking practice of backing out on contracts with customers who have paid large fees in the past isn’t prone to endear them to the buyout industry in the future.
Douglas A. McIntyre is an editor at 247wallst.com.
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