Chancellor to Sell Billboard Ad Unit

Chancellor Media Corp., one of the largest radio companies in the nation, is selling its billboard advertising unit to Lamar Advertising Co. for $1.6 billion, the companies announced Tuesday.

Lamar, a leading outdoor advertising company based in Baton Rouge, La., will pay $700 million in cash and $900 million in stock for Chancellor’s outdoor advertising operations, which consist of about 42,500 display faces.

The deal would give Lamar some 118,500 outdoor displays, making it one of the largest billboard advertising companies in the country. The large transfer of stock would give Dallas-based Chancellor a 30% stake in Lamar.

Chancellor’s decision to get out of the outdoor ad business comes just days after an opposite move by its main rival in the radio industry. On Thursday, Infinity Broadcasting, the radio subsidiary of CBS Corp., said it would buy the nation’s leading outdoor advertising firm, Outdoor Systems, for $6.5 billion in stock.

CBS’ managers say they want to use their increased billboard presence to sell major advertisers diverse packages of ads spanning the company’s outlets in network TV, radio and billboards. Infinity will have 114,000 outdoor displays, plus a million transit displays, an area where it is the leader.

Chancellor is choosing to put its energies into radio. Chancellor owns about 465 stations across the nation and is the largest radio company in the United States in terms of revenue, edging out Infinity.

Chancellor Chairman Thomas O. Hicks said the sale to Lamar would allow Chancellor to “focus on our industry-leading radio station portfolio.” Hicks’ investment firm Hicks, Muse, Tate & Furst has a major stake in Chancellor.

In selling the billboard business, Chancellor reversed direction from last year when it began snapping up outdoor companies as part of a $1.5-billion buying spree. Chancellor had planned to build a multimedia powerhouse of radio, television and billboards under one roof. Now Chancellor says it will whittle down its $6.4-billion debt load and focus on radio. It also wants to use its radio programming assets to expand onto the Internet.

“This is definitely good for Chancellor. The radio business is growing three times faster” than the billboard business, said James Marsh, an analyst at Prudential Securities Inc. who has a “strong buy” rating on Chancellor stock and an “accumulate” on Lamar.

Chancellor had said it was disappointed by the performance of its outdoor ad unit, whose revenue lagged that of its radio business. The lackluster growth was in part because of a lack of tobacco advertising after that industry was ordered to quit running cigarette ads on billboards as part of a $206-billion settlement with 46 U.S. states.

Dallas-based Chancellor said the 30% stake that it will get in Lamar means it will be able to pursue combined radio and billboard advertising sales with Lamar without the burden of operating the billboard business.

Chancellor shares rose 19 cents to close at $51, and Lamar rose $2.94 to close at $37.06, both on Nasdaq.