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Clear Channel Outdoor Faces Activist Investor Pressure to Pursue Strategic Review
Overview
Clear Channel Outdoor (CCO) is an out-of-home advertising company that specializes in billboards, street furniture displays, transit displays, and airport displays. With segments in America, Airports, Europe-North, Europe-South, and Other, CCO generates revenue from various sources. However, the company has been underperforming since its separation from iHeartMedia in 2019, mainly due to high leverage and a sub-optimized conglomerate structure. Activist investor Legion Partners has voiced concerns about the company's strategic review process and is urging the board to consider divestitures or a sale of the entire company.
Key Points
- Legion Partners, an activist investor, has sent a letter to Clear Channel Outdoor's board expressing concern over the scope and pace of the company's current strategic review process.
- Clear Channel's underperformance is attributed to its high leverage and sub-optimized conglomerate structure, which has led to a misunderstanding of the company's intrinsic value by the market.
- Legion Partners conducted a sum-of-the-parts analysis that suggests a significant upside for Clear Channel Outdoor if the company transitions to a U.S. pure play and reduces its leverage.
- The activist investor recommends that the company sell off its European and Latin American businesses to de-lever the balance sheet and focus on its U.S. assets, which are considered the company's crown jewel.
- Legion Partners also suggests that Clear Channel Outdoor explore a potential sale of the entire company to unlock further value.
Legion Partners' Perspective
Legion Partners believes that Clear Channel Outdoor's market-leading position in the out-of-home advertising industry gives it significant growth prospects. The company has a strong business moat, particularly with its billboard assets. While the European business works on fixed limited-term contracts, the U.S. business owns billboards and is in the process of converting them to digital, which would increase their revenue and EBITDA.
However, the activist investor highlights that the company's shares have severely underperformed since its separation from iHeartMedia. This is mainly due to Clear Channel Outdoor's high leverage and sub-optimized conglomerate structure. Legion Partners conducted a sum-of-the-parts analysis, which indicates that the company's stock price should be significantly higher than its current value. The firm sees value creation through divesting non-core assets and focusing on the U.S. market.
Recommendations
Legion Partners proposes two potential paths for value creation. First, the company could sell its European and Latin American businesses, becoming a U.S. pure play. While the sale of Europe-South and Latin America would not yield significant proceeds, it would allow management to focus on the U.S. assets, which are more valuable. Additionally, the sale of the Europe-North business could generate funds to de-lever the company.
Alternatively, Clear Channel Outdoor could explore a potential sale of the entire company. While this option may be more complex, it provides certainty and the possibility of higher returns. The activist investor suggests that management pursue one of these paths while also accelerating the strategic review process.
The ball is now in Clear Channel Outdoor's court to respond to Legion Partners' concerns. The activist investor has been actively engaged with the company for the past two years and has not hesitated to solicit proxies in the past. As the nomination window for board seats opens in 2024, Legion Partners has plenty of time to consider further actions if the company does not take their recommendations into account.
Conclusion: Impact on New Business
The activist pressure faced by Clear Channel Outdoor to pursue a strategic review could have significant implications for new businesses entering the out-of-home advertising industry.
One key takeaway is the importance of strategic focus and optimizing business structures. Clear Channel Outdoor's underperformance can be attributed to its high leverage and sub-optimized conglomerate structure, which has led to a misunderstanding of its intrinsic value by the market. This highlights the need for new businesses to carefully consider their structure and leverage levels to ensure they are well-positioned for growth and value creation.
Additionally, Legion Partners' recommendation for Clear Channel Outdoor to sell off its European and Latin American businesses and focus on its U.S. assets demonstrates the value of market-specific focus. By concentrating resources on their most valuable and promising markets, new businesses can enhance their competitive advantage and optimize growth opportunities.
Furthermore, the suggestion for Clear Channel Outdoor to explore a potential sale of the entire company emphasizes the potential for strategic partnerships or acquisitions in the out-of-home advertising industry. This highlights the importance for new businesses to constantly evaluate and seek out opportunities for collaboration or consolidation that can unlock further value and growth potential.
In conclusion, the activist investor pressure on Clear Channel Outdoor serves as a reminder for new businesses to prioritize strategic focus, optimize their business structures, and remain open to potential partnerships or acquisitions to drive growth and enhance value creation in the dynamic out-of-home advertising industry.
Article First Published at: https://www.cnbc.com/2023/07/01/activist-legion-partners-spots-two-possible-paths-to-create-value-at-clear-channel-outdoor.html
