Shares of Clear Channel Outdoor Holdings Inc. rose slightly Friday as the outdoor-advertising company had its trading debut on the New York Stock Exchange.
The stock was at $18.25 in early afternoon trading, up 25 cents, or 1 percent, from the IPO price of $18 a share for 35 million shares. That price came in below the expected range of $20 a share to $22 a share set by underwriters Goldman Sachs Group Inc. and Deutsche Bank AG.
Clear Channel Outdoor, which is based in San Antonio, Texas, was carved out of parent Clear Channel Communications Inc.
The $630 million offering of Clear Channel Outdoor was the first large deal since fertilizer producer CF Industries Holdings Inc. went public in August. The IPO market went through a slow October period and has recently indicated investor appetite for some smaller deals. Clear Channel Outdoor’s IPO was seen as a test of how well the market would support a larger offering.
Although Clear Channel Outdoor’s position as a known brand from a large media company weighed in its favor, its offering had some drawbacks. Its primary business of outdoor advertising — on billboards, bus shelters and the like — is dependent on a growing economy and increasing advertising spending, two trends that aren’t a sure bet right now.
In its prospectus, the company said a global economic slowdown and a decline in its clients’ advertising budgets resulted in net losses from 2002 through 2004. But during that period, Clear Channel Outdoor was able to produce operating income; what dragged it into the red was a massive load of interest expense.
Clear Channel Outdoor is loaded with debt, most of it owed to its parent. In 2003, it borrowed $1.5 billion from Clear Channel Communications; in August, it borrowed another $2.5 billion and then redistributed it in the form of a dividend to its parent. Even after all the proceeds of the IPO are used to pay down part of the debt, Clear Channel Outdoor’s total debt amounts to about $2.7 billion, approximately $2.5 billion of which is owed to Clear Channel Communications.
Put another way, the debt as a percentage of total capitalization was a lofty 98 percent before the IPO, and is now 70 percent after the offering. The company now has no net tangible book value, even after paying off part of the debt.
So far in the first nine months of 2005, Clear Channel Outdoor is profitable, earning $21.2 million, compared with net income of $3.9 million in the same period of 2004. The company warns in its prospectus that it can’t predict whether it will be profitable in the future.
— Associated Press