Clear Channel Communications, the biggest US radio group which has been struggling with falling audiences, plans to spin off its concert division and sell about 10 per cent of its billboard advertising unit through an initial public offering.
As part of the breakup plan, designed to “unlock shareholder value”, the San Antonio, Texas-based group will pay a $1.7bn or $3-a-share special dividend and raise its quarterly dividend by 50 per cent to 18.75 cents a share.
“We are seeking to unlock the considerable value in our company, and create a strong foundation for future growth, by improving the strategic, operational and financial flexibility in each of our leading business units,” said Mark Mays, Clear Channel’s chief executive.
The moves, which came as Clear Channel announced a 59 per cent drop in first quarter profits reflecting lower advertising receipts, mirror those at Viacom, the US media group run by Sumner Redstone, which is also considering a break-up plan in order to free units targeted for growth from more mature, slower growing segments.
Both companies’ plans highlight the difficulties of building multi-channel media and entertainment conglomerates.
Clear Channel’s announcement triggered immediate warnings from the US debt rating agencies on Friday. Standard & Poor’s and Moody’s Investors Service took the first step towards downgrading the company’s debt rating to “junk” status, placing the group’s outstanding $7.4bn in debt on review for a possible downgrade. Both ratings agencies cited the impact of the spin-off plans on the company’s cash flow available to service its debt and fund the higher quarterly dividend.
Mr Mays, however, claimed the initiatives would provide each business with “sharpened management focus and an improved ability to attract, retain and reward employees”, while providing clear valuations of the outdoor advertising and live entertainment businesses.
Clear Channel added that an IPO of the outdoor advertising business - the largest in the world with $2.5bn in billings last year - would also potentially enable the unit to pursue selective acquisitions using its separately listed stock.
As a separate and largely unregulated company, Clear Channel Entertainment, which produces arena concerts for artists such as Bette Midler and Britney Spears and has operations throughout North America, Europe, South America, Asia and Australia with sales last year of $2.75bn, will “enjoy enhanced flexibility to pursue initiatives,” Clear Channel said.
The group’s stock has fallen by about 26 per cent over the last year, reflecting its battle to stem the loss of advertising to the internet and listeners to satellite radio and digital music players such as Apple Computer’s iPod.
During the first quarter, the company tried to address these problems with a “less is more” campaign, cutting the number of advertising breaks on its radio stations. While Mr Mays said there were some early indications that the strategy had helped improve ratings, he acknowledged it also led to what he described as “a challenging first quarter.”
Earnings fell to $47.9m, or nine cents a share, from $116.5m, or 19 cents a share, a year earlier while revenue fell to $1.88bn from $1.97bn a year ago. Radio advertising sales fell by 7 per cent to $773.6m, while outdoor advertising sales rose by 11 per cent to $579m and live entertainment sales fell 17 per cent to $424.5m.
