CBS Class B shareholders will be able to exchange their CBS stock for CBSO shares at a 7% discount, subject to an upper limit of 2.1917. The final exchange ratio will be based upon ‘the simple arithmetic average of the daily volume-weighted average prices of CBS Class B common stock and CBS Outdoor common stock on the NYSE during a three-day period currently expected to be July 7, 8, and 9, 2014’. CBS has set up a special site to track the calculation of the VWAP and the site also links to all of the relevant exchange documents, including the prospectus. It is worth noting that the exchange will only be executed if the company is able to exchange 60% of its holdings or ~58.2m shares of CBSO. If the exchange offer crosses the minimum threshold, but doesn’t eliminate all of its holdings in the company, CBS would either run another exchange offer or dump the extra shares via special dividend (aka spinoff).
CBSO is in the process of converting into a REIT and the company is expected to change its name once it is fully out of CBS’ clutches. Additionally, CBS execs such as CEO Les Moonves are expected to step down from CBSO’s board after the separation. CBS Outdoor CEO Jeremy Male is certainly ‘very excited about our future’ and ‘as a wholly independent company, we believe we can take CBS Outdoor to new heights.’ CBS Outdoor has outperformed the general market since becoming a publicly traded entity and it will likely try to expand via acquisitions. It won’t be easy though.
The exchange offer (likely) marks the end of CBS’ lengthy exit of the outdoor advertising space. The company has been trying to reduce its exposure to the volatile ad selling business and leaving billboards behind represents another milestone in that process. Although this situation is no longer a true spinoff (and thus no forced selling), it’s still worth watching as exchange offers can introduce some interesting trading dynamics/strategies given the existence of the discount.
Disclosure: Author holds no position in any stock mentioned.