Ahead of the Bell: CBS

CBS shares continue to climb in premarket on plan to spin outdoor ad business into REIT

Associated Press

NEW YORK (AP) -- Shares of CBS Corp. continued to climb before Thursday's opening bell, after the media company announced plans to convert its U.S. outdoor advertising business to a real estate investment trust and sell the international portion of the business.

REITs return 90 percent of their profits to shareholders. By spinning the outdoor business into the new structure, CBS is betting that the business will be valued at a higher multiple of earnings than its core business of TV and radio broadcasting. It wasn't immediately clear how much of the REIT that CBS would continue to own.

CBS said late Wednesday that it will submit a request for a private letter ruling to the IRS during the first quarter. If that is granted, it could complete the REIT conversion in 2014.

There was no timetable for the sale of its outdoor advertising business in Europe and Asia.

Wedbush analyst James Dix raised CBS shares to "Outperform" from "Neutral," and he increased his price target by $14 to $50.

Dix said that while there are regulatory and tax hurdles to deal with, the proposed REIT could be worth at least $8 per share after taxes.

"This could be conservative, given that CBS outdoor assets in the U.S. are in larger markets, where billboard margins are higher," Dix wrote in a note to investors.

At the same time, the sale of the international business could generate after-tax proceeds of about $200 million, he said.

CBS shares rose $3.72, or 9.8 percent, to $41.66 in premarket trading.

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