Real World Sales Negotiations: Clear Channel Takes It To The Brink

by drjim on November 17, 2009

Caption: Clear Channel Needed Money And It Was Going To Have To Negotiate To Get It

Clear Channel Needed Money And It Was Going To Have To Negotiate To Get It

It’s all too easy to get caught up in the theory of negotiating and sometimes we forget to take the time to look around us and see other deals that are being made — and learn from them. If we needed a recent deal to teach us a lesson, the $20 billion dollar Clear Channel private equity buy-out would be a good example — because it almost didn’t happen!

The Background Of The Clear Channel Deal

Once upon a time Clear Channel was a high-flying communications company (in the 1990’s). Their stock traded at north of $100 per share. That was then, this is now — their stock has been in the dumpster for a while now and was trading in the low $30’s.

The company decided that what needed to be done is that they needed to go private. No problem with that decision, its just that it takes a whole lotta money to buy up all of those outstanding shares of stock.

This is where various private equity firms and six different Wall Street banks came in. A deal was struck to buy the company for $24.4 billion.

A Problem Arises

When somebody is getting ready to pay a lot of money for your company, the last thing in the world that you want to have happen is to start having legal problems. That, of course, is exactly what happened: Clear Channel got sued at the same time in two different states.

This of course messed with the value of the company and that made all of the bankers very mad — it was looking like they had agreed to pay too much for the company.

Things got so bad that when Clear Channel’s executives placed calls to the six bankers on the deal, only one of them called back. One of the reasons that the others didn’t call back was that they were afraid that the conversation could get introduced into court proceedings. People who worked on the deal said that the hatred (their word, not mine) got so bad that it was almost palpable.

Negotiation Comes To The Rescue

So how did Clear Channel and the bankers resolve their impasse? Negotiation of course (this blog is called The Accidental Negotiator after all!). How did they do this?

  • Egos Away!: Everyone involved took a step back and put their egos away for at least awhile (we are after all talking about Wall Street folks here).
  • 2nd Look: Next they took a second look at the deal that was on the table and started to get clinical about how they were going to go about doing the financing.
  • Mistrust: The banks had been reading the body language of the private-equity firms as saying that they didn’t want to do a deal anymore (at least at the price that had been agreed to originally).
  • Red Herrings: The banks started to make demands regarding the length of time that Clear Channel would be allowed to take a revolving loan and other items that had nothing to do with the price of the deal. These were all just a smoke screen.

In the end, it all got negotiated. The private-equity firms got the revolving credit from the banks that they believed they needed to make the company a success. The banks got a higher spread on the deal and ended up taking on less debt than they had originally signed up for.

What All Of This Means For You

Each of us ends up negotiating every day. It can be easy to get caught up in our own little world and forget to keep our eyes open so that we can see others who are also involved in the negotiation game. It is from them that often we can learn the most.

Clear Channel thought that they had a deal all wrapped up to sell themselves to willing buyers until the credit crunch came along. When the environment changed, along with a couple of lawsuits, the other partners in the deal wanted to make changes.

What started off very badly — anger and resentment were in ample supply, ended up with a new deal getting negotiated. What’s key for us to take away from this event is that having the ability to step back from an emotional deal, focus on what’s really at stake, and then find the courage to move forward is the mark of a great negotiator.

 

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What We’ll Be Talking About Next Time

The next time that you are facing a situation that will require a sales negotiation, I’d like to ask you to stop for a moment and consider one important question: should you go it alone or should you bring others from your side along with you?

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