Activist Legion Partners spots two possible paths to create value at Clear Channel Outdoor

Business: Clear Channel Outdoor is an out-of-home advertizing institution that offers a assortment of advertizing services, including done billboards, thoroughfare furnishings displays, transit displays and airdrome displays. It besides sells thoroughfare furnishings equipment, provides cleaning and attraction services and operates nationalist motorcycle programs. Clear Channel is breached into the pursuing segments, which relationship for the pursuing percent of revenue: America (45%); Airports (10%, successful the U.S. and Caribbean); Europe-North (23%); Europe-South (19%); and Other (3%, includes Latin America).

Stock Market Value: $661M ($1.37 per share)

Percentage Ownership: 5.08%

Average Cost: $1.98

Activist Commentary: Legion is an activistic capitalist whose managing directors are Chris Kiper, antecedently of Shamrock Activist Value Fund, and Ted White, antecedently of European activistic money Knight Vinke. Legion prefers to bash its activistic enactment down the scenes, resorting to a proxy combat if amicable discussions bash not spell well. The steadfast has important acquisition with user retail companies.

CCO is 1 of the largest and highest prime out-of-home ("OOH") advertizing companies. The OOH concern has semipermanent maturation prospects and a beardown concern moat, particularly among billboard assets. Clear Channel efficaciously has 2 concern lines – Americas and Europe, each with precise antithetic concern models and valuations. The European concern works connected fixed limited-term contracts with municipalities, which are rebid astatine maturity. Because of this, the European concern trades astatine astir a aggregate of 8 times net earlier interest, taxes, depreciation and amortization. Most of the U.S. concern is billboards, which the institution owns, and accordingly trades person to 13 times to 15 times EBITDA. Moreover, these billboards are successful the process of being converted to digital, which volition let each billboard to make astir 4 times much gross and six to 10 times much EBITDA. However, this conversion requires the support of each municipality and volition not beryllium a speedy process.

Despite its marketplace starring position, Clear Channel's shares person earnestly underperformed since its separation from iHeartMedia successful May 2019. CCO is presently trading 79% beneath the pre-deal stock terms and 65% beneath its peers since the separation. CCO's underperformance has been linked to respective factors, but is mostly driven by the company's precocious leverage, which amplifies volatility, and the sub-optimized conglomerate structure, which increases complexity. This has led to a misunderstanding by the marketplace of the intrinsic worth of the underlying assets, which should beryllium importantly higher than what is implied by the existent banal price. Legion Partners conducted a sum-of-the-parts investigation based connected 2024 adjusted EBITDA estimates which implies an upside of 230% (implied valuation of $3.57 compared to $1.08 arsenic of May 12). The steadfast thinks this could beryllium unlocked arsenic the institution transitions to a U.S. axenic play and reduces its leverage. Legion highlighted that portion multiples for publically traded OOH peers person compressed precocious fixed imaginable macroeconomic slowdown concerns, it has seen that backstage marketplace multiples for OOH assets are robust. Legion thinks that fixed speedy synergies, manufacture consolidation is an accretive pursuit for immoderate OOH player.

Legion has been actively engaged with the institution for the past 2 years and astir recently, had a gathering with absorption connected May 12, wherever Legion expressed its concerns with the gait and scope of the company's strategical reappraisal process. Specifically, Clear Channel has been prioritizing the merchantability of assets wrong Europe-South, adjacent though the importantly larger portion of the concern is Europe-North. Moreover, since this strategical reappraisal of Europe began successful December 2021, Clear Channel has announced the income of businesses successful Italy, Spain and Switzerland. This is concerning since arsenic a fixed-contract business, the worth goes down the person the contracts get to maturity. Accordingly, Legion is pushing for an accelerated pursuit of a merchantability of the Europe business.

Legion sees 2 imaginable paths to worth instauration here. First, the institution could merchantability disconnected its European and Latin American businesses and go a U.S. axenic play. While determination is small worth to Europe-South and Latin America, Legion believes that the Europe-North concern could fetch $500 cardinal to $600 cardinal successful a sale, which could beryllium utilized to de-lever the company. Additionally, portion selling Europe-South and Latin America would not output important proceeds, it would get escaped of a distraction and let absorption to absorption connected its crown jewel U.S. asset. As a merchantability of the European concern would not beryllium capable to optimally de-lever the equilibrium sheet, Clear Channel could besides see selling prime U.S. assets. Legion would similar to spot absorption prosecute this program portion besides exploring a imaginable merchantability of the full company. Such a merchantability would beryllium much analyzable and perchance little lucrative than the different plan, but it would person the payment of certainty.

CCO archetypal announced its strategical reappraisal of the European concern successful December 2021 and precise small has travel to fruition. It is unclear wherefore this is and what the logjam is, but if it continues, Legion volition privation to beryllium wrong the boardroom to get a amended look. Legion has shown successful the past that it has nary hesitancy successful soliciting proxies if it feels that is necessary. We person nary uncertainty that if the steadfast is met with reluctance by the committee to commence 1 of the 2 outlined paths, Legion volition question committee seats. But the steadfast has plentifulness of clip to marque that determination arsenic the information model does not unfastened until Jan. 4, 2024.

Ken Squire is the laminitis and president of 13D Monitor, an organization probe work connected shareholder activism, and the laminitis and portfolio manager of the 13D Activist Fund, a communal money that invests successful a portfolio of activistic 13D investments.