CBS announced it will divest the 81% of CBS Outdoor America (CBSO) it holds. Shareholders can exchange shares of CBS Class B common stock for shares of CBS Outdoor common stock at a 7% discount with a limit of 2.1917 shares of CBS Outdoor for every Class B share they hold. After the split-off, CBS Outdoor plans to convert into a Real Estate Investment Trust (REIT).
Noted Marci Ryvicker, Wells Fargo Securities Senior Analyst: “CBS announces split off of CBSO 3+ Months Early! CBS has launched the tax-free split off of CBSO–details are as follows: 1) CBSO shares will be offered at a 7% discount, subject to an upper limit of 2.1917 shares for every share of CBS Class B. If the upper limit is not in effect, tendering shareholders would receive $107.53 of CBSO for each $100.00 of CBS Class B. 2) The final exchange ratio will be based on the simple arithmetic average of the daily volume-weighted average prices of CBS Class B and CBSO on the NYSE during a three-day period (July 7, 8, and 9, 2014). 3) Shareholders of CBS Class A may participate by converting their Class A to Class B shares. 4) Completion is subject to certain conditions, including the distribution of at least 58.2MM shares of CBSO (60% of total); the receipt of opinions of counsel regarding tax-free treatment; and the continued effectiveness and validity of the PLR. 5) CBS owns 97MM shares of CBSO, or 81%. The largest possible number of shares of CBS Class B that will be accepted in the exchange offer will be 97MM divided by the final exchange ratio. 6) If the exchange offer is undersubscribed, CBS would use additional exchange offers or a special dividend to all CBS shareholders to complete the disposition of its CBSO shares.
We view this as a positive for CBS and CBSO. Recall the 6-month lock up period post the CBSO IPO, which meant that CBS’ planned split off/exchange was expected in Q4. Given today’s news, this transaction will occur 3+ months early, which means a) the $3B retirement of CBS shares will happen in Q3 instead of Q4 (leading to higher EPS) and b) CBS could announce a 2.75-3.0x target leverage ratio earlier than anticipated. For CBSO, the REIT conversion process will now take place much earlier; and we like the 7% discount vs. the 10% we had expected.”