Outdoor Systems to Buy 3M’s Billboard Business

Outdoor Systems Inc. on Thursday agreed to buy the billboard business of Minnesota Mining & Manufacturing Co. for $1 billion, solidifying its lead in outdoor advertising.

The 3M unit, National Advertising Co. of Bedford Park, Ill., is the third-largest U.S. billboard company, with annual sales of about $220 million and 25,000 billboards nationwide. It has 530 employees.

For Phoenix-based Outdoor Systems, the purchase expands its market shares in California and Texas and provides an entry into Florida markets. The deal would be the second such acquisition for Outdoor Systems since last summer, when it bought Gannett Co.’s billboard business for $710 million.

“It’s an indication of how good the industry is,” said James Marsh, a Prudential Securities analyst. A strong U.S. economy helped boost first-quarter revenue at the publicly traded outdoor advertising companies by about 8%, he said.

Shares of Outdoor Systems, which went public last year, jumped $2 to close at $29.75 on Nasdaq. 3M shares rose 12.5 cents to close at $87.125 on the New York Stock Exchange.

The deal, expected to close in one to four months, would boost Outdoor Systems’ lead over No. 2 Eller Media Corp. of Phoenix, which was bought earlier this month by Clear Channel Communications Inc. for $1.15 billion.

The $2-billion industry has been rapidly consolidating in the last year as several of the major players, including Outdoor Systems, Universal Outdoor Holdings Inc. and Lamar Advertising Co., went public and used the proceeds to snap up smaller rivals.

The outdoor advertising industry has been experiencing a renaissance. According to the Outdoor Advertising Assn. of America, out-of-home advertising was the fastest growing advertising medium in 1996, with revenue rising 7% from the previous year.

“There’s more demand than supply now for billboards, as there are federal, state and local regulations” that limit expansion, said Kippy Burns, vice president of communications for the association.

She said techniques such as computerized painting and the use of vinyl instead of paper have increased the quality of billboard images and the speed at which they can be installed. That has attracted new advertisers, who are expected to take up any slack if tobacco companies are forced to reduce their advertising.

About 8% to 12% of the industry’s revenue now comes from tobacco, down from about 39% in 1979. Marsh said tobacco currently accounts for about 8% of Outdoor’s revenue, and that that would fall to about 4% with the 3M acquisition. 3M stopped taking tobacco advertising in May 1996.

3M, the maker of Post-It Notes, Scotch adhesive tape, sandpaper and other products, underwent a restructuring last year, when it spun off its imaging products business as Imation Corp. It took a second look at its billboard business at that time as well.

“The outdoor advertising industry has changed significantly in recent years, and we recognized that substantial investments would be required to maintain market leadership,” Ray Richelsen, 3M group vice president, said in a statement.

3M expects to record a gain of about $500 million, or $1.20 a share, for the quarter in which the sale is completed. The transaction is subject to government approval.

Outdoor Systems said the acquisition will give it 96,000 display “faces” in 40 states, including 20 of the top 25 U.S. metropolitan markets and seven of the top 10 Canadian markets.