CBS (CBS) has just launched the spinoff of its CBS Outdoor Americas (CBSO) division, which rents advertising space on highway billboards as well as in municipal transit systems. The particularly unsexy business still is seeing a decent showing today — it raised roughly $560 million, and CBS Outdoor’s stock is up about 8% in its debut.
CBS Outdoor is the result of aggressive M&A that began roughly 20 years ago. At first, the dealmaking mostly took place in the U.S., Canada and Mexico, but in 2008, CBSO expanded its footprint into Argentina, Brazil, Chile and Uruguay.
Now, CBS Outdoor is one of the biggest players on the field, boasting marquee locations include the Bay Bridge in San Francisco, Sunset Boulevard in Los Angeles and Grand Central Station and Times Square in New York City. In all, CBS Outdoor has a portfolio of 356,000 displays.
Outdoor advertising has a few key attractive points — for one, because they’re giant, physical billboards, they can’t be turned off or skipped. And these ads generally tend to be helpful in sparking interest in local businesses.
In a step toward modernization, CBS Outdoor has tried boosting performance by placing digital displays in high-traffic areas, which allow for richer ads and better targeting.
CBSO has roughly 19,700 clients that’s a who’s who list of major advertisers including Anheuser-Busch InBev (BUD), Apple (AAPL) and McDonald’s (MCD).
Regulations in the outdoor market are something of a blessing and a curse. It’s tough to get approval for new billboards, which means there’s less potential for new competition — but while moats are nice, it also restricts CBSO’s ability to find new avenues for growth.
As a result, CBS Outdoor has been mostly treading water. Last year, for instance, revenues only inched up about 1% to $1.29 billion. (CBSO earned $88 million off that.)
Still, investors shouldn’t expect absolutely no growth — CBS Outdoor will just have to turn to acquisitions to do it. Right now, interesting potential merger partners include JCDecaux, Clear Channel Outdoor (CCO) and Lamar Advertising (LAMR), plus a variety of regional operators.
CBS itself should also benefit from the spinoff. CBS Outdoor had little synergistic value and was likely a distraction for management. Plus, the timing of launching the offering at a hot time for IPOs has seemed to help, given CBSO’s nice debut.
For those interested in the process: CBS will distribute the remaining 83% stake to its shareholders. After this, CBS Outdoor will convert to a real estate investment trust, which provides key tax advantages and allows for a juicy dividend. CBSO plans to pay 37 cents on a quarterly basis, which translates into a dividend yield of about 5%.
Underwriters for the CBS Outdoor IPO included Goldman Sachs (GS), Bank of America Merrill Lynch (BAC), JPMorgan (JPM), Morgan Stanley (MS), Citigroup (C), Deutsche Bank (DB) and Wells Fargo (WFC).
Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.
