IPO Fuels Acquisition Ambitions for CBS Outdoor (and CBS Corp. Too)

Billboard Industry is Ripe for Consolidation

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A CBS Outdoor digital sign in Time Square.
A CBS Outdoor digital sign in Time Square.

CBS Outdoor Americas will seek to buy smaller U.S. billboard companies now that its $560 million initial public offering is complete, ramping up competition with Lamar Advertising and Clear Channel Outdoor Holdings.

CBS Outdoor increased 7.5% to $30.09 at 10:02 a.m. in New York, after selling 20 million shares at $28 each, according to a statement yesterday. That was the high end of the $26 to $28 range. Parent CBS Corp., getting the bulk of the proceeds, will continue to own 83% of the company after the sale, filings show.

The billboard industry is ripe for consolidation, with independent owners accounting for 36% of the U.S. market, said Jeremy Male, CEO of the unit. CBS Outdoor's estimated $50 million from the IPO, a credit line and a publicly traded stock provide currency for deals and a chance to stand out. CBS Outdoor, Clear Channel Outdoor and Lamar each have about a 20% share, he said.

"It's a big opportunity," Mr. Male said in an interview. "We can certainly use our infrastructure to better manage and market those assets."

By splitting off from CBS and becoming a real estate investment trust, the business will have the ability to buy competitors in the 25 biggest U.S. markets and convert more locations to more-profitable electronic signs, Mr. Male said. At the IPO price, the company has a market value of $3.36 billion.

REITs have become a popular tool for companies to lower taxes and improve returns for investors. REITs don't pay federal income taxes and are required to distribute at least 90 percent of taxable earnings as dividends.

After six months, CBS will begin an offer letting its investors exchange their stock for shares of the billboard company, Mr. Male said. The company intends to unload its entire CBS Outdoor stake, and will distribute any remaining stock to its shareholders, according to filings.

For CBS, the added cash provides ammo for acquisitions. CEO Les Moonves will "see what else is available in the content space" for purchase by CBS in addition to retiring stock.

"If something presents itself, our balance sheet will be in great shape and this infusion of cash will make it even better," Mr. Moonves said.

For 2013, CBS Outdoor said net income increased 27% to $143.5 million on revenue that was little changed at $1.29 billion. Outdoor contributed about 8.5% of CBS's revenue and 7.5% of operating profit.

About 87% of CBS Outdoor's revenue comes from the U.S., with the rest from Canada, Mexico and Latin America, Mr. Male said. Contracts to sell ads for public transit provide about 30% of sales, with New York, Los Angeles and Washington the dominant sources, he said.

Digital billboards will be a higher priority, Mr. Male said. The electronic signs, now numbering about 400, or 1.5% of the inventory, contribute around 10% of U.S. revenue, he said. The company expects to add 80 to 100 electronic billboards, he said.

"That's a good and growing part of our portfolio that we would expect to increase in the future," Mr. Male said. "It's very much a real growth driver."

Mr. Moonves said CBS moved ahead with the split after deciding outdoor ads couldn't be sold with its TV and radio stations.

"We tried many times," Mr. Moonves said. "We tried in different local environments to sell radio, TV and outdoor together and it's very hard to do. It's a difficult task and there wasn't a lot of success. This will not hurt radio or TV sales or outdoor sales, because there's very little overlap."

~ Bloomberg News ~

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