Clear Channel Communications Inc. (CCU), the largest U.S. radio station chain which has been battling falling audiences, Friday said it will spin off its unit that produces live entertainment and sell about 10 percent of its outdoor advertising business in an IPO.

The company will also make a $1.7 billion special payout, or $3 a share, and raised its quarterly dividend by 50 percent.

Its shares rose 4 percent to $33.25, even as the company reported a 59 percent drop in first-quarter profit on lower radio advertising sales.

"We're seeking to unlock the considerable value in our company, and create a strong foundation for future growth, by improving the strategic, operational and financial flexibility in each of our leading business units," said Mark Mays, Clear Channel's chief executive and president, in a statement.

Analysts said the strategy echoes moves by conglomerates such as Viacom Inc. (VIAB) to free units targeted for growth from more mature, slower moving segments.

"It's hard to see any downside," said analyst David Bank at RBC Capital Markets. "They're jettisoning their worst-performing business -- concerts -- which is a marginal contributor to profit, and they're issuing a dividend."

Shares of Clear Channel have fallen by about 26 percent over the last year, as it has lost advertising dollars to the Internet and lost listeners to satellite radio services and digital music players such as the iPod.

Clear Channel said the IPO of the outdoor advertising unit and spinoff of the entertainment unit will result in greater financial muscle for future acquisitions, because the separately listed stocks will provide clear valuations of the two businesses.

The company also said the spinoff of the entertainment unit will allow it to operate as a largely unregulated public company, as opposed to the company's heavily regulated radio business.

The special dividend of $3 a share will result in a total payout of about $1.7 billion, based on Clear Channel's 561 million shares outstanding.

The company reported first-quarter earnings fell to $47.9 million, or 9 cents a share, from $116.5 million, or 19 cents a share, a year earlier.

Analysts on average had forecast earnings of 12 cents a share, according to Reuters Estimates.

Revenue fell to $1.88 billion, missing analysts' expectations of $1.94 billion, from $1.97 billion a year earlier, as it sought to cut commercial airtime in order to boost ad rates.

Radio advertising sales fell by 7 percent to $773.6 million, while outdoor advertising sales rose by 11 percent to $579 million and live entertainment sales fell 17 percent to $424.5 million.

After the spinoff, Clear Channel Entertainment, which produces arena shows like Bette Midler (search) and Britney Spears (search), will consist of entertainment operations throughout North America, Europe, South America, Asia and Australia. It had annual sales of about $2.75 billion in 2004.

The company raised its quarterly dividend to 18.75 cents a share from 12.5 cents a share. The dividend will be payable on July 15 to shareholders of record on June 30.