What happens to the proceeds?

Clear Channel Outdoor executives have resisted an asset sale because they say that their assets have a low tax basis and that a large portion of the sale would have to go to the IRS.   Let’s assume that about two times cash flow or $962 million of sale proceeds must go to taxes.

At a 12.5 times sale multiple Clear Channel Outdoor could pay taxes, retire all debt and have a debt free airports division with $68 million of cashflow which is probably worth $440 million at a 5 times cashflow multiple.

At a 14 times billboard cashflow sales multiple Clear Channel could pay taxes, retire all debt, send out a special distribution of $667 million to shareholders and still have an airports division generating $88 million of annual cashflow which is worth $440 million at 5 times cashflow.

Is a sale good for shareholders?  It depends on the sale multiple and how much will go to pay taxes.

Clear Channel Outdoor has a current market cap of $729 million.  If US billboards are sold for 12.5 times cashflow and $1 billion must go for taxes, shareholders will have $424 million in value remaining versus a current market cap of $729.  The sale does not create value.  If, however, the US billboards sell for 14 times cashflow and $1 billion must go for taxes then shareholders will have $1.1 billion in value which equates to a 50% improvement over the company’s current market cap.

How sweet a sale is for investors depends in large part on whether the sale can be done in a way that eliminates taxes.  If an extra $1 billion can go to shareholders instead of the IRS any sale is a no-brainer.

Will the DOJ approve

A second consideration is whether the DOJ would approve a sale and what conditions is would put on a sale to another operator.  It seems like the current administration is less focused on antitrust considerations than past administrations.

Here’s our worksheet.