After spending decades building a huge and diverse media empire, Sumner Redstone was shocked to find himself in an unusually vulnerable position late last week, forced to sell off a big chunk of his holdings in Viacom Inc. and CBS Corp.Sumner Redstone cherishes his control of Viacom and CBS and would be unlikely to give them up without a fight.
Mr. Redstone had used his prized stakes in those two publicly held media giants, which he controls, to help back a $1.6 billion loan to expand his family's movie-theater chain, among other things. On Monday, Mr. Redstone's family holding company, National Amusements, announced it had completed the sale of $233 million of Viacom and CBS shares in the market to avoid breaching its loan covenants.
Shares in Viacom and CBS rallied sharply Monday with the broader market, taking some of the pressure off Mr. Redstone. But the episode shows how vulnerable he may be to market swings. Viacom's Class B stock was up 26% Monday at $20.80 in 4 p.m. composite trading on the New York Stock Exchange, after tumbling 18% Friday. CBS Class B shares were up 7.9% at $8.74, after falling 20% Friday. Viacom stock has fallen about 49% in the past year, while CBS is down around 71%.
Other corporate executives have also been forced to sell their holdings in recent days to meet loan requirements. (Please see related article on CEOs selling their holdings.)
Through a spokesman, Mr. Redstone, 85 years old, declined to comment. According to people familiar with the situation, he was caught off guard by the turn of events, and National Amusements spent much of the weekend negotiating with its banks and assessing its funding options. After indicating Friday it would sell shares worth $400 million, it ultimately succeeded in curbing the amount of stock it had to sell. The privately held company declined to comment on the reason for the change but said it didn't have any plans to sell more stock.
So far, Mr. Redstone has sold only nonvoting stock, leaving his control of Viacom and CBS intact. But he could be forced to sell more stock if the companies' share values fall below levels reached last week.
Indeed, strategic and financial players started to hover over the weekend, flagging their interest in investing in Viacom and CBS if Mr. Redstone needed more cash, according to people familiar with the situation. "If National Amusements is subsequently forced to sell voting shares, this could put CBS and Viacom in play," said Anthony DiClemente, an analyst at Barclays Capital.
Mr. Redstone has long cherished his control of the two media companies, especially Viacom, whose cable networks and movie studio he spent years piecing together, and he is unlikely to give them up without a fight. His family holding company owns an additional $540 million of nonvoting stock in Viacom and CBS, which he could tap before dipping into his $1.4 billion of voting stock.
Friday "wasn't one of his happiest days," Viacom Chief Executive Philippe Dauman told a conference in Cannes, France, on Monday. "Everyone knows he loves these stocks."
Apart from the Viacom and CBS stakes, National Amusements owns a privately held movie-theater chain, which is run by Mr. Redstone's daughter Shari. But that is not an easy asset to sell. National Amusements also has an 87% stake in videogame company Midway Games Inc., which has a market value of around $169 million. In addition, it has a stake of about 9% in slot-machine company WMS Industries, which has a total market value of around $1.24 billion.
The $1.6 billion loan at the center of Mr. Redstone's latest drama has raised questions among investors as to why National Amusements needed so much money, especially since it had already been selling Viacom stock to keep its ownership steady as the company bought back stock.
In large part, the loan was used to expand the movie-theater chain, people familiar with the situation said. Shari Redstone has been building the business aggressively, upgrading theaters with stadium seating and expanding abroad.
The loan agreement was linked to the operating performance of National Amusements as well as Viacom and CBS stock, according to these people.
Mr. Redstone and his daughter have been at odds over the future of the theater business. After a major disagreement last summer, Mr. Redstone has been discussing selling the chain to her in exchange for her 20% share in National Amusements, according to people familiar with the situation.
Thus far, though, those negotiations have failed to yield a deal.
