Ernie Garcia II, another Copper State billionaire, is riding shotgun as Arte Moreno returns to billboards.
According to a Securities and Exchange Commission filing published last week, Moreno, a Phoenix resident who made his fortune in the out-of-home advertising industry before purchasing the Los Angeles Angels in 2003, has purchased over 16 million shares in Clear Channel Outdoor Holdings, a publicly traded U.S. billboard company headquartered in San Antonio, for around $20 million. This amounts to 3.3% of total outstanding corporate stock.
According to the filing, Garcia II, the owner of Phoenix-based used car shop DriveTime Automotive and the main shareholder of online used car dealer Carvana, purchased 3.8 million shares through his investment firm Verde Investments. According to the filing, William Pope, CEO of Scottsdale-based SunChase Investments, also purchased 5.6 million shares in the transaction.
The trio owns 5.3% of the company’s outstanding stock. Clear Channel was valued at $870 million as of Tuesday’s market close of $1.81 per share. Garcia and Moreno both declined to comment. A request for comment from Pope and Clear Channel was not returned.
Clear Channel’s newest stock investors are also bondholders. According to the filing, Moreno owns $5 million in senior notes due in 2028 with a 7.75% interest rate, while SunChase Investments owns $2.65 million in the same notes. Garcia II owns $52 million in Clear Channel debt, including $20 million in bonds due in 2028 and $32 million in first lien loans due in 2026, according to the same document.
According to a source familiar with the group’s thinking, they believe Clear Channel’s stock is undervalued, and that its earnings multiple is only trailing industry peers like Lamar Advertising Company and Outfront Media due to the company’s large debt pile.
Clear Channel generated about $2.5 billion in sales and $560 million in profitability before interest and other expenses last year, but suffered a net loss of roughly $100 million, owing primarily to the $340 million it spent in interest on debt instruments. Long-term debt totals $5.6 billion for the corporation.
“The presumption is it’s a great set of assets and a very questionable balance sheet,” says Lance Vitanza, an equity research analyst at Cowen and Company, LLC. “Given the dramatic increase in interest rates, the company’s borrowing costs have risen significantly.”
Moreno and his associates are not the first to bet on the future of Clear Channel. Legion Partners, an activist investment group, declared a 5.1% holding in the firm in May and wrote to the company’s board of directors, encouraging them to consider additional divestitures and perhaps a sale of the entire company. In recent years, Clear Channel has been attempting to divest its European businesses.
“The company can grow into its capital structure once it divests its European assets,” says Vitanza, who has a buy rating on Clear Channel’s equity and bonds.
Private equity firms have always been interested in the industry. Since 2019, PIMCO has been the company’s largest shareholder, holding approximately 22% of all outstanding shares. (It acquired its ownership as part of iHeartMedia’s 2019 reorganization). Ares Management, led by billionaire Antony Ressler, has amassed an 11.7% interest in 2022 and early 2023.
Moreno sees the venture as a return to his entrepreneurial beginnings. The Angels, worth an estimated $2.7 billion, account for more than half of Moreno’s net worth of $4.8 billion. However, the 77-year-old Vietnam veteran started his career in marketing before cofounding Outdoor Systems, a billboard company he ran as CEO until selling to CBS Corp for $8.3 billion. “We basically built the company from the ground up, grew it, acquired [other companies], and ended up as the largest billboard company in North America when we sold it,” Moreno previously told Forbes.
Yet, Moreno isn’t the only member of his investor group with experience in the billboard industry.
Garcia II, 66, is best known as the owner of DriveTime Automotive in Phoenix, which incubated Carvana, which went public in 2017 (and is now controlled by his son, CEO Ernie Garcia III). He is believed to be worth $6.8 billion, which includes his $2.4 billion ownership in Carvana and an additional $4.4 billion in cash and other investments through his holding firm Verde Investments.
Verde Outdoor LLC, a billboard company he created in 2021, holds over 1,200 billboard faces across the United States and claims to be one of the 25 largest out-of-home advertising corporations in the country on its website. According to Vitanza (who has not spoken with the investment group), Garcia II’s company could gain from any future changes at Clear Channel.
“We believe the group’s position in Clear Channel equity and debt could be motivated by a desire to push the Company towards hiving off some non-core assets in the US, assets which would potentially become a good fit for Verde Outdoor,” said a Cowen research note published earlier this week. “It’s also possible the group could join with other shareholders arguing for more aggressive strategic action in the US, [including] a sale of the entire company.”