Company: Clear Channel Outdoor Holdings (CCO)
Business: Clear Channel Outdoor Holdings is an outdoor advertising company that provides clients with advertising through billboards, street furniture displays, transit displays and other out-of-home advertising displays. The company operates entirely within the United States, with assets including printed and digital billboards, transit displays, including airports, street furniture and wallscapes and other spectaculars.
Stock Market Value: $755.45 million ($1.52 per share)
Activist: Anson Funds
Ownership: 3.65%
Average Cost: n/a
Activist Commentary: Anson Funds is a multistrategy fund founded in 2007 by Moez Kassam and has over $2 billion in assets. While not historically activists, on Oct. 3, 2023, Anson hired Sagar Gupta, former senior analyst and head of TMT investing at Legion Partners, to build out their activism strategy.
What's happening
On Sept. 22, Anson Funds announced that they are calling for a sale of Clear Channel Outdoor Holdings.
Behind the scenes
Clear Channel Outdoor is one of the largest out-of-home advertising companies that offers a variety of advertising services, including through billboards, street furniture displays, transit displays, and airport displays. In the U.S., they are one of the three big companies in this sector, with Lamar Advertising and Outfront Media numbers one and two, respectively.
Historically, the challenges for CCO have centered around the company's two business lines – Americas and Europe, each with very different business models and valuations. The European business worked on fixed limited-term contracts with municipalities, which were re-bided at maturity. Because of this, the European business traded around 8x EBITDA multiple, while the U.S., largely comprised of owned billboards, traded closer 13 – 15x EBITDA.
These problems prompted Legion Partners to launch an activist campaign at CCO in May 2023, urging the company to consider a broad strategic review process, including divesting non-U.S. assets or a sale of the entire company. Legion also highlighted CCO's potential value proposition through its transition to digital billboards, which would allow each billboard to generate about four times more revenue and six to 10 times more EBITDA. Ultimately, they settled for a board seat for Legion co-founder Ted White, who still serves as a director today. Since then, CCO has executed a series of divestures, including selling its European business to Bauer Media Group, its Latin America business to Global Vía Públic, and, just two weeks ago, its Spain business to Atresmedia. These moves have transformed CCO into a U.S. pureplay and allowed it to start paying down its debt. However, despite this successful activist catalyst, CCO is yet to achieve the rerating some expected – currently, CCO trades at approximately 13-14 times EBITDA, versus peers Lamar and Outfront at 16-18 times. As a result, the stock is down 26.56% since Legion filed its 13D and over 90% from its IPO price.
On Sept. 22, Anson Funds joined the party, announcing that they are calling for a sale of the company. While this is a new campaign for Anson, this is not the beginning of their investment story. Sagar Gupta, who runs Anson's activism strategy, was at Legion Partners when they launched their campaign, and, perhaps not coincidentally, CCO has appeared in Anson's 13F holdings every quarter since Gupta joined the fund, now with a 3.65% position as of their most recent filing. So, Anson's call for a sale of the company is not a short-term, opportunistic campaign, but a decision made after years of analysis and working amicably with the company and at a time when it has become most feasible.
The company is now a U.S. pureplay, making it more focused and more valuable from a multiple perspective and easier to acquire from a regulatory perspective. Possible acquirers include JCDecaux and Lamar.
In fact, JCDecaux terminated an agreement to buy CCO's Spain assets after facing restrictive demands from Spanish regulators. More specifically, JCDecaux maintains major exposure in virtually every OOH market outside the U.S. and has been rumored to be interested in the company.
As for Lamar, it has a history of acquiring CCO's assets, including a $458.5 million transaction in 2016, and has publicly expressed potential interest in additional transactions. In addition, Blackstone‘s recent acquisition of New Tradition at 18x EBITDA, Berkshire Hathaway‘s new position in Lamar, and Ares Management's 8% position in CCO, all underscore the private equity appetite for the OOH industry.
Before coming to a decision like this, it is important to see what the standalone alternative looks like and why a sale may be more compelling for shareholders. To really properly restructure this business in the public market it would certainly require the time and risk of reconstituting the board and likely many management changes. Even with that, the company would still carry approximately $5 billion of long-term debt making it difficult to attract capital.
Additionally, CCO's promising digital transformation has been very slow. Since Legion's campaign, digital billboards have only grown to 5% of the portfolio, though they already count for over a third of CCO's revenue. While this underscores the huge value opportunity with digital conversion, it requires approvals of individual municipalities, significantly slowing the speed at which CCO can roll out digital ads, and not ideal for a public company that reports quarterly progress. As a result, after years of analysis and support, Anson has concluded that a sale offers the best risk adjusted path forward, a position we imagine Legion and other shareholders likely share.
Ken Squire is the founder and president of 13D Monitor, an institutional research service on shareholder activism, and the founder and portfolio manager of the 13D Activist Fund, a mutual fund that invests in a portfolio of activist 13D investments.
