Media giant CBS Corporation (CBS - Free Report) announced that it has received a favorable tax ruling from the Internal Revenue Service (IRS) in a private letter regarding the conversion of its subsidiary CBS Outdoor Americas Inc. into a real estate investment trust (REIT). Shares of CBS Corp. rose 2% yesterday while that of CBS Outdoor rose nearly 7%.
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Earlier this month, CBS Outdoor had concluded an initial public Offering (IPO) of 19% of its stake. After eliminating underwriting discounts and commissions, the net proceeds from the IPO came in at $615 million. CBS Outdoor will use the net proceeds to pay CBS Corp. for its contribution, and use the remaining amount to pay shareholders’ in correlation with the conversion into a REIT.
The remaining 81% stake in CBS Outdoors is held by CBS Corp. The latter plans to sell it through a tax-free split-off later this year. CBS Outdoor plans to convert itself into a REIT going forward.
This is important from taxation point of view, as REITs enjoy tax benefits given the norm of paying 90% of its income as dividends to shareholders. As per CBS Corp., the conversion will help maximize the shareholders wealth.
CBS Outdoors America is a leading out-of-home media companies with significant presence in the United States, Canada, Mexico and South America. As of Sep 30, 2013, the company had nearly 329,100 displays in the United States and about 26,100 displays throughout Canada and Latin America. Its clientele includes McDonald's Corp. (MCD - Free Report) and The Gap, Inc. (GPS - Free Report) .
Currently, CBS Corp. carries a Zacks Rank #3 (Hold).