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CBS surges on REIT plan for outdoor ads

NEW YORK (AP) -- Shares of CBS Corp. surged Thursday to its highest level in more than 12 years after the company announced plans to convert its U.S. outdoor advertising business into a real estate investment trust and sell the international portion of the business.

Analysts reacted positively to the move, sending shares up $3.66, or 9.7 percent, to $41.59 after rising as high as $42.55 earlier in the session. FactSet said that was the highest level for CBS since December 2000.

REITs return 90 percent of their profits to shareholders and don't have to pay taxes on those profits. For those reasons, investors value the assets at a greater multiple of earnings than for CBS as a whole. Several analysts said the REIT structure would double the value of the billboard ad business overnight.

Morgan Stanley analyst Benjamin Swinburne said this creates an opportunity for CBS to sell the business and use an estimated $4.9 billion in proceeds to buy back shares. In 2014, when the conversion is planned, that would result in profits being concentrated in fewer hands, helping earnings per share rise by about 14 percent that year.

"A conversion should likely act as a catalyst to monetize this 'non-core,' higher-multiple asset," he wrote in a research note.

CBS said late Wednesday that it will submit a request for a private letter ruling to the IRS during the first quarter. If that is granted, it could complete the REIT conversion in 2014.

There was no timetable for the sale of its outdoor advertising business in Europe and Asia.

Wedbush analyst James Dix raised CBS shares to "Outperform" from "Neutral," and he increased his price target by $14 to $50.

Dix said that while there are regulatory and tax hurdles to deal with, the proposed REIT could be worth at least $8 per share after taxes.

"This could be conservative, given that CBS outdoor assets in the U.S. are in larger markets, where billboard margins are higher," Dix wrote in a note to investors.

At the same time, the sale of the international business could generate after-tax proceeds of about $200 million, he said.