What Will CBS Do With The Cash From Its Outdoor Initiatives?

The company's stock is up about 10.3% this morning, to $41.86 ' an all time high ' as the smart money bets that CBS will repurchase shares after it carries out the complicated plan announced last night to restructure its billboard ad sales operation. But some wonder whether CEO Les Moonves will use the proceeds to hunt for acquisitions. An independent cable network or TV studio would 'boost the company's ability to create more owned content,' Nomura Equity Research's Michael Nathanson observes. Moonves has said he'd be interested in Sony Pictures, although Sony insists it's not for sale. Other possible targets include Hallmark, TV Guide Network, and AMC Networks, says Bernstein Research's Todd Juenger. What about Starz, which Liberty Media just spun off into an independent company? While there's 'plausible industrial logic' for CBS to go after the premium cable service, Juenger notes that 'CBS flatly denies any interest.' Meanwhile Pivotal Research Group's Brian Wieser wonders whether Moonves' decision to offload billboards suggests he might sell other seemingly non-core assets such as the Simon & Schuster book publishing division.

There's no rush for CBS to act: It probably will have to wait a year before it can cash in on its new initiatives.  The company said last night that it will turn the U.S.-based billboard operation into a Real Estate Investment Trust (REIT), and sell the overseas operations. The IRS only allows companies to convert a business into a REIT at the beginning of the calendar year, so that can't happen until January 2014. (If CBS wanted to move quickly it presumably could borrow against its expected gains.) Once the conversion takes place, then most analysts believe CBS will spin the U.S. REIT off into a separate company. That could generate anywhere from about $3B (Wieser's estimate) to $6.8B (Wells Fargo's Marci Ryvicker). The sale of the international assets would generate much less: Ryvicker figures $170M while Wieser says $1B.

Whatever happens, most analysts figure it will pay off for shareholders ' and raised their stock price targets accordingly. Wieser is +$2 to $51 a share. Ryvicker's range goes to a maximum of +$2 to $47. Macquarie Securities' Tim Nollen and Barclays Equity Research's Anthony DiClemente are both +$4 to $46. UBS Investment Research's John Janedis is +$7 to $45. Nathanson is +$3 to $44. And Juenger is +$4 to $43. 

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