Why we bought CBS Outdoor Americas

The Ironwood SMID Cap Value portfolio declined 6.89% in September. Stocks in the utilities and financial services sectors were among the biggest contributors to the performance, while energy and consumer staples picks were off during the month.

During the month, we initiated a position in CBS Outdoor Americas (CBSO), which was spun-off from CBS Corporation (CBS) through a partial IPO in March, 2014. The remaining shares will be distributed to shareholders in July.


Outdoor Ads

One of the largest outdoor advertising companies in the U.S., the company has confirmed its conversion to a REIT. In my opinion, this move may boost its price multiple and lead to acquisitions. The company has already completed a $690 million deal.

Under new CEO Jeremy Male, CBS Outdoor aims to improve its operational efficiency, develop its use of digital billboards and pursue other as-yet-undefined opportunities for value creation.

Importantly, the REIT structure will, in my opinion, allow the company to return much of its substantial free cash flow directly to shareholders.

On another front, the portfolio sold off its position in Micron Technology (MU), which we’ve owned for a while.

We purchased the stock due to our belief that MU’s then-pending acquisition of Elpida would help lead to a more rational DRAM market.

The acquisition also gave MU access to Apple (AAPL) as a customer which would help lead to faster revenue and earnings growth.

We sold the stock in tranches as the transition unfolded and, in our opinion, the fundamental benefits of a better DRAM market were realized.

DISCLAIMER: The investments discussed are held in client accounts as of September 31, 2014. These investments may or may not be currently held in client accounts. The reader should not assume that any investments identified were or will be profitable or that any investment recommendations or investment decisions we make in the future will be profitable. Past performance is no guarantee of future results.