CBS Outdoor Americas Inc. (NYSE: CBSO), what has been the outdoor advertising subsidiary of CBS Corp. (NYSE: CBS) is now its own company — more or less. The company priced its initial public offering of 20 million shares of common stock at $28.00 per share.
The “more or less” rationale behind CBS Outdoor being its own company is that it is effectively a tracking stock. That likely will change later this year (see below), but after the IPO closes it turns out that CBS Corp. will still own about 83% of CBS Outdoor. That figure will be closer to 81% if the underwriters exercise their overallotment option to purchase the additional shares.
The IPO press release shows that CBS plans to divest its shares through a tax-free split-off later in 2014. CBS Outdoor will not truly be its own company after the divestiture occurs. Perhaps more importantly, after CBS is fully divested, then CBS Outdoor plans to convert into a real estate investment trust (REIT). Until then, CBS Outdoor has to be considered a tracking stock — and has to be considered a “REIT in-waiting.”
As far as color on the offering, most of the book went to institutional buyers. This is a small float, so it created higher investor demand.
Shares of CBS Corp. managed to rise 2% on Friday morning to $62.70, after closing at $61.47 on Thursday. This stock was at $66 just on Monday. Its 52-week range is $43.77 to $68.10.
CBS Outdoor said that it plans to use the net proceeds as partial consideration to CBS for the contribution of the outdoor business entities, as well as the cash portion of the distribution to shareholders required in connection with the conversion to a REIT.
Goldman Sachs, Bank of America Merrill Lynch, J.P. Morgan and Morgan Stanley were the joint book-running managers for CBS Outdoor. Co-managers were listed as Citigroup, Deutsche Bank Securities and Wells Fargo Securities. CBS Outdoor has also granted the underwriters a 30-day option to purchase an additional 3 million shares at the initial public offering price.
As far as why the arbitrage is ending, that can be seen in the short interest. CBS Corp.’s short interest was down to as low as 11.55 million shares and 13.85 million shares at the end of January and mid-February, respectively. Then the short interest popped up to 26.375 million shares at the end of February and drifted slightly lower to what is still elevated at 22.18 million shares short in mid-March. These last two short interest readings were the highest they have been for the past year, indicating that short sellers were working on IPO arbitrage bets ahead of the deal.
CBS Outdoor Americas shares were indicated at $29 to $31 at first, and then the indications went to $29.50 to $30.50. Shares opened at $30.10.
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