Sumner Redstone famously began his 2001 autobiography with the words "Viacom is me." Maybe it's time he assumed a new identity.
In the wake of news that his private company National Amusements was carrying a heavy debt burden of a much as $1.6 billion, Mr. Redstone should consider selling part or all of his controlling stakes in either Viacom or CBS. That might allow the 85-year-old media mogul to get out of the financial hole he has dug for himself. A new control shareholder could also provide some fresh ideas -- something lacking at Mr. Redstone's empire in recent years.
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Selling at or near a market bottom of course would be anathema to Mr. Redstone. But his dumping of $233 million worth of stock in the two companies at the low point of the crash on Friday, under pressure from lenders to NAI, has shown that these are not usual times for Mr. Redstone. The CBS and Viacom holdings, which aside from a theater chain are NAI's biggest assets, have lost between 50 and 70% of their value in the past 12 months.
There's doubtless no shortage of private-equity firms and even some strategic buyers circling Mr. Redstone's empire right now, hoping for a cheap deal. Viacom is trading at about 6.3 times Barclays Capital's estimated 2009 earnings before interest, taxes, depreciation and amortization, even after Monday's rally. Advertising-dependent CBS is even cheaper, trading at around 4.7-times.
Mr. Redstone almost certainly is rebuffing any offers for now. Another stock market fall could force him to rethink.
Of the two, Viacom may be the easier company to sell. While CBS is heavily exposed to aging broadcast TV and radio, Viacom owns cable networks such as Comedy Central, MTV and Nickelodeon that still have growth potential. Viacom's public debt also would mostly remain outstanding if the company were sold, making a deal easier to finance.
Viacom has a hefty market capitalization of about $13 billion. But a buyer could get control for much less, by simply snapping up Mr. Redstone's 81.6% holding of Viacom's voting shares. Even at a 100% premium to current prices, Mr. Redstone's parcel would cost only about $2 billion. Notably, the usually nonexistent spread between A class voting and B nonvoting shares in both Viacom and CBS has widened slightly in recent days. In a potential change of control voting shares suddenly become much more valuable.
A sale of his controlling stake in Viacom would allow Mr. Redstone to pay off National Amusements' debt. He would then have time to wait before deciding on what to do with CBS.
Viacom shareholders would surely protest at Mr. Redstone selling just his stake at a premium. But, if Mr. Redstone sold to a smart buyer, long-suffering public shareholders could find themselves in better hands.
