CBS to use Infinity IPO to reduce debt

Coin infusion to fuel growth

NEW YORK — CBS Corp. expects to raise $2.5 billion from the sale of 20% of radio-and-outdoor group Infinity Media Corp., it revealed in an SEC filing, which would roughly halve the Eye’s existing debt load.

The filing, a preliminary prospectus for Infinity’s IPO, also highlighted Infinity’s intention to grow by acquisition in both radio and outdoor.

“The company intends to pursue acquisitions of radio stations primarily in the 50 largest radio markets in the United States,” it said in the prospectus. Infinity is seen as the leading contender to buy Jacor Communications, expected to fetch about $4 billion.

CBS announced almost a month ago that it planned to separate its radio and outdoor businesses into a reconstituted Infinity and sell 20% of the new company to the public in an IPO. Infinity is now the biggest radio broadcaster in the country, with 161 radio stations in 34 markets and about 11% of U.S. radio advertising spending, the prospectus said.

Last month, CBS execs indicated they expected to raise roughly $3.5 billion to $4 billion in the offering on a valuation for Infinity of $20 billion-$23 billion.

The prospectus is preliminary and has no details on Infinity’s market valuation but it does reveal that Infinity issued a five-year promissory note for $2.5 billion to CBS on Friday, which will be repaid out of the proceeds from the offering.

Infinity went on to say in the prospectus that any extra money raised would be used for “general corporate purposes, including possible acquisitions.” As the prospectus is preliminary and the amount to be raised is uncertain, this wording likely reflects SEC requirements rather than CBS’ precise intentions for use of the money.

The promissory note is believed to have been issued for tax-related reasons, to ensure CBS’ sale of a minority stake in Infinity was tax-free.

The filing has few other new details on the offering. While selling 20% of the company to the public, CBS will retain super-voting stock that will ensure it retains voting control.

Infinity said it believes the “radio business has significant growth potential,” as consolidation among stations has made “radio more competitive with newspapers, television and other media which can deliver large audiences across a wide range of demographics.”

Infinity, whose name was resurrected from Mel Karmazin’s radio giant acquired by CBS in 1996, has grown rapidly in recent years through acquisition and Karmazin’s management.

Revenues have jumped from $180 million in 1993 to $1.4 billion in 1997, while net profit rose from $28 million to $160 million over the same period of time.

The new Infinity will be run again by Karmazin, continuing on as CBS president, and the company will enter into an agreement with CBS to compensate the Eye for his services.

The stock market’s gyrations over the past few weeks have raised doubts about whether Infinity or other forthcoming IPOs, such as those planned by Goldman Sachs and News Corp.’s Fox Entertainment Group, will proceed.

Infinity’s offering is not expected to go to market until the end of the year, and the stock market may have settled down by then, Wall Streeters say.

Lehman Bros. analyst Tim Wallace said Monday that “people feel (Infinity) is a high-quality deal that will get done.”

Wallace added that when Karmazin goes on the road to market the offering, he would likely help turn around investors’ sentiments to broadcasting stocks in general.

Broadcasting stocks have been buffeted dramatically by the stock market sell-off, including CBS, which fell $1.43 Monday to $27.18.

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