Clear Channel Communications Inc. said on Friday its board backed an increased buyout proposal from Bain Capital Partners and Thomas H. Lee Partners of $19.6 billion, which gives shareholders an option to hold a stake in the restructured company.

The U.S. radio station operator canceled a vote on a lower bid from the buyout groups scheduled for Tuesday, and said it will set a new date after filing a new proxy statement. Under the timetable set, that is likely to take place in August.

Clear Channel had been under shareholder pressure to postpone Tuesday's vote in order to allow Bain and T.H. Lee to raise their bid of $39 a share, or $19.5 billion, to $39.20 a share.

The stock rose 1.2 percent to $38.23 on the New York Stock Exchange.

The company originally rejected the $39.20 offer, arguing that its acceptance would delay the date of the meeting by up to 90 days, with no certainty the deal would be approved.

But shareholders pressured Clear Channel to reconsider its decision, with several holders previously telling Reuters they had called on the company's board to put the new bid to a vote.

Shareholder support for the revised bid has since been gathering momentum, a source familiar with the situation told Reuters on Thursday, with several significant shareholders who previously opposed the lower bid now supporting the revised offer.

Calpers, the biggest U.S. pension fund, which had opposed the $37.60 offer, said Friday it would support the revised bid and was evaluating whether to take the stub equity option.

The revised deal is the latest twist in the battle for Clear Channel since it announced in October it had hired Goldman Sachs to help it evaluate strategic alternatives.

That provoked interest from a number of private equity players. In November, Bain and T.H. Lee beat out a rival consortium including Providence Equity Partners, Blackstone Group and Kohlberg Kravis Roberts, to buy Clear Channel for $37.60 a share.

But Bain and T.H. Lee's bid ran into trouble when a small number of large shareholders, and influential proxy advisory service ISS, said the bid undervalued the company.

The buyout firms then offered a higher price of $39, and later $39.20, with the option of co-investing in the firm, known as "stub equity."

Part of the difference of opinion about how much Clear Channel is worth has been based on investors' and analysts' views on the radio industry -- with some more bullish on growth prospects for radio than T.H. Lee and Bain.

Offering shareholders the ability to participate in Clear Channel after the buyout through the proposed co-investment option is one way to appease investors who wanted to share in any improved growth.

Analysts at JP Morgan wrote in a Friday research note: "We believe the new deal terms may be enough to garner the necessary 67 percent shareholder approval."

Tough Hurdle

The Clear Channel buyout faces a difficult hurdle because under Texas law, holders of at least two-thirds of a company's shares must approve the transaction. Shareholders who fail to vote are counted as voting against the deal.

But significant shareholders including Fidelity and NWQ Investment Management Co. have told Clear Channel that they are supportive of the revised proposal, the source familiar with the situation said Thursday. Fidelity and NWQ Investment were not available for comment.

Another significant shareholder, Highfields Capital Management LP, is also supportive of the new bid, sources previously told Reuters. Highfields and Fidelity had previously opposed a lower bid by the two buyout firms.

ISS may also have some sway. It had recommended shareholders vote against previous bids. Asked whether it would issue a new report on the bid, an ISS spokeswoman said: "We will be evaluating the situation." She declined further comment.

(Published by Reuters, May 18, 2007)