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CKX IPO: Sillerman’s Sweetheart Deal

(CelebrityAccess MediaWire) – Robert FX Sillerman recently brought the financial team of Bear Stearns and Lehman Brothers, the book wizards who aided him in the sale of SFX Entertainment to Clear Channel Communications and other bank-breaking deals in the 1990s, back together for the initial public offering of his latest venture, CKX. The results this time, however, were far less impressive.

The CKX stock offering raised $200 million, selling 20 million shares at $11 per share – a 55% discount from the company’s original plan first announced in April to sell 13 million shares at $24 to raise $300 million, according to Forbes. The company found some support over the next day, closing at $13.78, but dropped back another 88 cents to $12.90 by midday trading on the final day of the week.

The most striking detail of the somewhat sketchy offering is where the proceeds will be going.

Bear Stearns had an incentive to get the deal done beyond satisfying its important client. Of the $200 million net proceeds raised, $150 million is being used to repay loans Bear Stearns made to CKX at its inception. Another $35 million will be used to satisfy a portion of the purchase price for the American Idol properties. This leaves only $15 million for CKX to do more entertainment acquisitions, as Sillerman reportedly plans.

In March, CKX authorized the issuance of up to 275 million shares, of which it currently has 88.5 million outstanding. This gives the company the ability to go back to investors and raise more equity to buy more properties. And since the current offering has wiped out the company’s debt, it may also tap the fixed income markets again.

“This offering appears to be nothing more than a sweetheart deal for Bear Stearns,” Jacob Zamansky, a lawyer who represents individual investors, told Forbes. “One hopes their brokers disclosed the various conflicts and financial data rather than just hype the Elvis and American Idol assets.”

Sillerman’s advisors had further incentives in place as well. A Bear Stearns senior managing director owns 500,000 shares of CKX. A senior partner at Greenberg Traurig, the law firm advising on the offering, owns 375,000 shares.

The long-term viability of the assets is questionable: the ability to monetize Elvis could dissipate over time and it’s debatable whether American Idol has really entered “the permanent fabric of our culture,” as Sillerman reportedly said, or is just another video fad.

Investors are far more discerning today than they were five years ago, Seth Lipner, a securities lawyer at Deutsch & Lipner, told Forbes. “Back in the ‘90s no one noticed or cared about the fine print in these offerings,” he told the magazine. “Today, many investors are taking a harder look at these lousy deals and deciding to stay away.” –by CelebrityAccess Staff Writers