And We’re Off! Clear Channel Litigation Begins

[WSJ_law_blog]

This morning, the writing was on the wall — the planned privatization of Clear Channel Communications was on the rocks, with the private equity firms and banks backing the transaction failing to resolve differences over final financing terms.

This afternoon, the private equity firms — Thomas H. Lee and Bain Capital — went on the litigation offensive, filing lawsuits in Texas and New York against a syndicate of Wall Street banks in an effort to force them to fund the firms’ $19 billion buyout, according to a dispatch from the Journal’s Matthew Karnitschnig and our very own law blog alumnus Peter Lattman.

Friedman Kaplan Seiler & Adelman filed the New York suit (click here). The firm, with about 50 lawyers, sometimes gets a piece of high-profile cases where the mega law firms that regularly represent banks of the ilk sued here feel conflicted out of suing them, for ethical or biz reasons.

The pair of suits, one filed in Bexar County, Texas and another in New York’s State Supreme Court, charge that the banks — Citigroup, Morgan Stanley, Credit Suisse, The Royal Bank of Scotland, Deutsche Bank and Wachovia — breached a contract with the private equity firms to fund the Clear Channel deal. Clear Channel joined the suit in Texas, where it is based.

The banks “pretended to negotiate the final documentation in good faith,” the New York lawsuit states, “but in reality inserted into the final documents poison provisions” squarely contrary to the terms of the agreement.

The firms’ decision to sue, which came after a breakdown in negotatiations over the finanicing terms on the deal, could undo the transaction just days before it was supposed to close.