CBS Outdoor Opens 7.5% Higher in IPO

Shares of CBS Outdoor Americas (NYSE: CBSO), the billboard advertising company spun off from broadcaster CBS Corp. (NYSE: CBS) rose 7.5% in their debut in an initial public offering on the New York Stock Exchange.

The bump in early trading – the shares opened at $30.10 -- was expected given the relatively strong demand for the shares ahead of the IPO. Underwriters were able to price the shares Thursday at $28, at the top of their projected range of $26 to $28.

The IPO sold 20 million shares and deal valued the company at about $3.36 billion. The shares are trading on the NYSE under the symbol ‘CBSO.’

CBS the broadcaster said it decided to spin off its outdoor advertising arm so that it could focus more on content and reduce its reliance on advertising dollars toward its bottom line.

Following Friday's IPO, CBS will continue to own about 83% of CBS Outdoor, but plans to divest the rest of its stake later this year.

In filings with the Securities and Exchange Commission, CBS Outdoor describes itself as one of the largest lessors of outdoor advertising space in the U.S., Canada and Latin America with a portfolio consisting mainly of billboards located in densely populated, major metropolitan areas.

The company has displays in the 25 largest U.S. markets and over 180 markets in North and Latin America, including heavily trafficked locations such as the Bay Bridge in San Francisco, Sunset Boulevard in Los Angeles and Grand Central Station and Times Square in New York City.

“We believe that the location of many of our displays is a strategic advantage relative to other forms of advertising,” the company said in its IPO filing.

In 2013, CBS Outdoor reported revenues of $1.29 billion, a slight increase over the prior year, and a 27% increase in earnings to $143.5 million.

“Most other media's audiences are declining or fragmenting,” Jeremy Male, CBS Outdoor’s CEO told the Wall Street Journal. Male said billboards have an advantage over TV adds because people can’t click away from them with a remote, like they do TV commercials.

"What we can say about our audience is that it keeps growing," he said, noting that increasing commute times have expanded roadside billboard’s reach to consumers.

The company’s IPO prospectus emphasizes that point as well: “We believe that out-of-home advertising is an attractive form of advertising as our displays are (always on) and cannot be turned off, skipped or fast-forwarded, and that it provides our customers with a differentiated advertising solution at an attractive price point relative to other forms of advertising.”

Once CBS fully exits the company, CBS Outdoor plans to covert to a real-estate investment trust, or REIT, which benefits investors because REITS don't pay corporate income taxes on taxable income they distribute to shareholders, and must pay out at least 90% of taxable income to qualify.

Goldman Sachs (NYSE: GS), Bank of America’s (NYSE: BAC) Merrill Lynch, JPMorgan Chase (NYSE: JPM), and Morgan Stanley (NYSE: MS) are lead underwriters on the deal.