Company: Clear Channel Outdoor Holdings (CCO)
Business: Clear Channel Outdoor Holdings is a prominent outdoor advertising company that delivers advertising solutions through various formats, including billboards, street furniture displays, transit displays, and other out-of-home advertising options. Operating solely within the United States, the company boasts a diverse portfolio of assets, encompassing both printed and digital billboards, transit displays in airports, street furniture, wallscapes, and other spectacular advertising formats.
Stock Market Value: $755.45 million ($1.52 per share)
Activist: Anson Funds
Ownership: 3.65%
Average Cost: n/a
Activist Commentary: Anson Funds, a multistrategy fund established in 2007 by Moez Kassam, manages over $2 billion in assets. Although historically not known for activism, on October 3, 2023, Anson appointed Sagar Gupta, the former senior analyst and head of TMT investing at Legion Partners, to spearhead their activism strategy.
What’s Happening
On September 22, Anson Funds publicly called for the sale of Clear Channel Outdoor Holdings.
Behind the Scenes
Clear Channel Outdoor is among the largest players in the out-of-home advertising sector, providing a wide array of advertising services, including billboards, street furniture displays, transit displays, and airport advertising. In the U.S., it ranks as one of the top three companies in this industry, alongside Lamar Advertising and Outfront Media, which hold the first and second positions, respectively.
Historically, CCO has faced challenges due to its two distinct business lines—Americas and Europe—each characterized by different business models and valuations. The European segment operated on fixed limited-term contracts with municipalities, which were subject to re-bidding upon maturity. Consequently, the European business traded at an EBITDA multiple of around 8x, while the U.S. operations, primarily consisting of owned billboards, traded closer to 13-15x EBITDA.
These issues prompted Legion Partners to initiate an activist campaign at CCO in May 2023, advocating for a comprehensive strategic review process. This included considering the divestiture of non-U.S. assets or even a complete sale of the company. Legion emphasized CCO’s potential value through its transition to digital billboards, which could generate approximately four times more revenue and six to ten times more EBITDA. Ultimately, they secured a board seat for Legion co-founder Ted White, who continues to serve as a director. Since then, CCO has undertaken several divestitures, including selling its European business to Bauer Media Group, its Latin America business to Global Vía Públic, and recently, its Spain business to Atresmedia. These strategic moves have transformed CCO into a U.S. pureplay, enabling it to begin reducing its debt. However, despite these successful activist efforts, CCO has yet to achieve the anticipated rerating, currently trading at about 13-14 times EBITDA, compared to peers Lamar and Outfront at 16-18 times. As a result, the stock has declined by 26.56% since Legion filed its 13D and is down over 90% from its IPO price.
On September 22, Anson Funds joined the fray, calling for the sale of the company. This marks a new chapter for Anson, but it is not the start of their investment journey. Sagar Gupta, who now leads Anson’s activism strategy, was previously at Legion Partners during their campaign. Notably, CCO has appeared in Anson’s 13F holdings every quarter since Gupta’s arrival, with a current position of 3.65% as per their latest filing. Thus, Anson’s call for a sale is not a fleeting, opportunistic move but rather a well-considered decision made after extensive analysis and collaboration with the company.
With CCO now positioned as a U.S. pureplay, it is more focused and potentially more valuable from a multiple perspective, making it easier to acquire from a regulatory standpoint. Possible acquirers include JCDecaux and Lamar.
Interestingly, JCDecaux had previously terminated an agreement to acquire CCO’s Spain assets due to restrictive demands from Spanish regulators. Given JCDecaux’s significant exposure in nearly every OOH market outside the U.S., there have been rumors of their interest in acquiring CCO.
Lamar, on the other hand, has a history of acquiring CCO’s assets, including a $458.5 million transaction in 2016, and has publicly indicated potential interest in further transactions. Additionally, Blackstone‘s recent acquisition of New Tradition at 18x EBITDA, along with Berkshire Hathaway‘s new position in Lamar and Ares Management’s 8% stake in CCO, all highlight the growing private equity interest in the OOH industry.
Before arriving at a decision regarding a sale, it is crucial to evaluate the standalone alternative and understand why a sale may be more appealing for shareholders. Restructuring the business in the public market would likely require significant time and risk, including reconstituting the board and potentially making numerous management changes. Even with these efforts, the company still carries approximately $5 billion in long-term debt, complicating capital attraction.
Moreover, CCO’s digital transformation has been progressing slowly. Since Legion’s campaign, digital billboards have only expanded to 5% of the portfolio, despite accounting for over a third of CCO’s revenue. This highlights the substantial value opportunity associated with digital conversion, but it also necessitates approvals from individual municipalities, significantly hindering the speed at which CCO can implement digital ads—an undesirable situation for a public company that reports quarterly results. Consequently, after thorough analysis and support, Anson has concluded that a sale represents the best risk-adjusted path forward, a sentiment likely shared by Legion and other shareholders.
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.
