) is nearing the completion of its outdoor business split. In June,
the company announced plans to divest 81% ownership in CBS Outdoor
Americas. Last week, the company announced the final exchange ratio
of 2.1689 shares in the new company for each Class B share of CBS
tendered. This is the final step in the split process of its
We believe that the split of outdoor business is a step in the
right direction, as this will take the revenue contribution of
non-advertising income to 50% for CBS. This is significant for the
content companies as less reliance on advertising income and
accelerating growth from non-advertising sources can ensure stable
growth outlook in the long run.
CBS' outdoor business generated revenues of $1.3 billion in
2013. The estimated EBITDA margin of 34% for outdoor segment
translates into EBITDA of $438 million, representing 10% of CBS'
overall EBITDA for 2013. The outdoor segment contributes close to
7% to CBS' value, according to our estimates. We will soon be
updating our model to reflect the impact of split.
See our complete analysis for CBS
How Is The Outdoor Business Trending?
CBS Outdoor Americas offers outdoor advertising that includes
advertisement via billboards (including digital) as well as
advertisements on bus stops, metro stations, buses and cabs. It
operates outdoor advertising structures in more than 100 markets in
North America. The company's America outdoor revenues have
increased slightly from $1.23 billion in 2010 to $1.3 billion in
2013. CBS divested its Europe outdoor business last year for $225
CBS Outdoor Americas was spun off as an independent company in
March 2014. It reported independent results for the first
quarter with 3% year-over-year growth in revenues to $288 million.
The EBITDA was $76 million, reflecting margins of 26%.
Growth in the Outdoor Industry and What Does the Split
Mean for CBS?
The outdoor business derives revenues from advertising, which
has been trending well over the past few years. While the overall
North America advertising revenues grew by 1.5% in 2013, outdoor
media advertising increased by 5% due to growth in digital
platform. The outdoor media advertising will grow by 5% in 2014,
according to a report by Magna Global. Global outdoor advertising
revenues will grow at an average annual rate of 4.7% and reach $40
billion mark by 2018.
CBS currently derives more than 55% of its revenues from
advertising income while content licensing, affiliate and
subscription fee make up for the rest. The advertising trends are
uneven driven by occurrence of political campaigns and sports
events. It is thus important for content owners to increase its
reliance on more stable source of income such as subscription and
affiliate fees. The split with outdoor business will ensure stable
growth for CBS in the long run. Moreover, CBS Outdoor Americas will
become a real estate investment trust (REIT), which is
a popular tool to lower taxes and improve returns for
investors. It must be noted that REITs don't pay federal income
taxes, they rather distribute minimum of 90% of taxable earnings to
shareholders as dividends.
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