CBS To Split Off Its Outdoor Billboard Business

Leslie MoonvesLes Moonves

Photo: TechShowNetwork via Flickr

Jan. 17 (Bloomberg) — CBS Corp. jumped in extended trading after saying it will convert its outdoor advertising division into a real estate investment trust and seek a buyer for the European and Asian parts of the business.The owner of the most-watched U.S. television network gained as much as 9.3 per cent to $41.46 yesterday in extended trading after the announcement. If completed, the actions may be worth $3 a share to CBS investors, Michael Morris, an analyst at Davenport & Co., said in an interview.

Real estate investment trusts, or REITs, have become a popular tool for companies to lower taxes and improve returns for investors. REITs don’t pay federal income taxes, with the understanding that they distribute at least 90 per cent of taxable earnings to shareholders as dividends. CBS could split off the REIT as a separate stock to shareholders.

“We believe the moves we are announcing today will unlock the tremendous value of these unique quality assets,” Chief Executive Officer Leslie Moonves said in the statement.

The conversion could be finished in the 2014 tax year, New York-based CBS said yesterday in a statement. The European and Asian businesses will be classified as discontinued operations as of Dec. 31, 2012, the company said.

To qualify as a REIT, a company has to invest at least 75 per cent of its assets in real estate and obtain 75 per cent of its gross income from rents or interest on mortgages from financing property, according to the National Association of Real Estate Investment Trusts, a Washington-based trade group.


Made Sense

“We studied this asset, and it’s a real estate business,” CBS Chief Financial Officer Joseph Ianniello said yesterday in an interview. “The REIT alternative started to make sense in 2012 as we studied it more.”

CBS’s outdoor business generated $1.38 billion in sales in the first nine months of last year, or 13 per cent of the parent company’s revenue. Operating income more than doubled to $82 million in the period from $35 million a year earlier.

The company will seek approval for the conversion from the Internal Revenue Service this quarter. If the request is granted, the business would be converted in 2014, CBS said.

The European and Asian outdoor business could be sold in pieces, Ianniello said. That may draw more potential buyers.

Morris values those businesses at about $400 million.

“There are a number of potential moves from here,” said Morris, who recommends CBS shares. “The announcement is an initial step.”

JCDecaux SA, the world’s largest outdoor advertising company, could be a buyer for some assets, according to Paul Sweeney, senior media analyst with Bloomberg Industries. The company, based in Neuilly-Sur-Seine, near Paris, has been looking for deals to increase sluggish sales growth.

“This is a great move for CBS,” Sweeney said. “Outdoor advertising is an excellent free cash flow business.”

–Editors: Rob Golum, Stephen West


To contact the reporters on this story: Edmund Lee in New York at [email protected]; Andy Fixmer in Los Angeles at [email protected]


To contact the editor responsible for this story: Nick Turner at [email protected]

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