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Redstone Foolishly Selling CBS and Viacom

October 15, 2009

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HOLLYWOOD, CA (RPRN) 10/15/09 — By Jeffrey Jolson

– Mogul Sumner Redstone is doing something very crazy in a recession. He is selling off valued entertainment stock, when everyone knows that the harder the economy, the better that movie and TV shows do.

Why? Because he owes the banks so much dough, and the entertainment stock in CBS and Viacom still have plenty of steam.

He owes a billion bucks to the banks so he his unloading $600M of Viacom and $350M of CBS. The bankers must of sent Tony and Little Georgie to threaten his knees, as selling two hot companies makes little sense, as they tend to be recession-proof.

A market rally in recent months has jacked up the price of Viacom and CBS shares — Viacom has more than doubled, CBS has risen fourfold — putting National Amusements on firmer financial footing with regard to its debt covenants. With the stock up, National Amusements also gets more bang for each share it sells.

His holding company National Amusements wants to raise another $300-plus million selling movie theaters but is offering up fewer theaters for sale than it had in an initial auction launched early this year. “This auction is not the same auction,” a person close to the company said to Variety.

The Norwood, Mass.-based company will keep more of its core locations in New England, New York and New Jersey. Its theaters in the U.K. and Brazil have been taken off the block. A number of theaters in the Midwest will be sold as a group. Theaters in Argentina and a few other territories are still for sale.

When the process is finished, the company will hold about 50 theaters in the U.S. and 20 in the U.K., the person said.

The sale gets Viacom out of the clutches of the banks, which stipulate that a payment is due when the stock price of Viacom and CBS falls.

That’s what happened exactly a year ago. Redstone stunned the market by selling $233 million worth of shares in Viacom and CBS, revealing in the process a massive $1.6 billion debt load at parent company National Amusements that Wall Street hadn’t been aware of. The loans were backed by shares of Viacom and CBS.

Redstone was in hot water, but renegotiated his loans with his creditors over several painful months.

“As a result of our actions, National Amusements will be out of debt with its existing creditors and will still control its most important assets,” said Redstone, who is

When the stock sale is complete, National Amusement’s outstanding $1.46 billion in debt will be whittled down to about $500 million. Tax credits will take that lower, plus the sale of the theaters. The company will end up with about $200 million in debt, which it would probably refinance.

Until recently, Redstone had insisted that his holding company wouldn’t sell another share of Viacom or CBS. But Wall Streeters remained skeptical of that claim, given the rocky markets, the sheer amount of the debt, and the difficulty of selling assets during an economic slowdown.

Now that the other shoe has dropped, some analysts think it may be a good thing for the companies.

“We believe that the sales will remove an overhang from the stocks and likely provide a buying opportunity,” said Michael Morris, of UBS Investment Research, in a note to clients Wednesday.

Other Wall Streeters had been willing to accept the overhang — if it meant that Redstone would ultimately have had to cede control of Viacom and CBS.

“Viacom and CBS shareholders have held out hope over the past year that somehow National Amusements’ debt situation would cause (it), and in turn, Sumner Redstone, to lose voting control of both Viacom and CBS,” wrote Rich Greenfield of Pali Research. “Now any hopes have been completely eliminated — National Amusements will be essentially debt free, while maintaining its iron-clad grip on both Viacom and CBS.”

The latest move calls for National Amusements to sell all of its 16.3 million shares of Viacom Class B stock — about 3% of the total Class B shares outstanding. It will sell additional shares of Class A stock, but only after they are converted to Class B stock on a one-for-one basis.

After the sale, National Amusements will retain in excess of 75% of the voting control of each company.

Separately Wednesday, CBS reaffirmed its full-year financial outlook. It said it expects to earn between $1.73 billion and $1.93 billion in operating income before depreciation and amortization.

Shares of Viacom gained 49¢, or 1.63%, to close at $30.58. The shares were trading way down around $13 at the end of last year.

CBS shares rose 37¢, or 3.05%, to close at $12.52. The shares hit their 52-week low of $3.16 last spring.

photo: Sumner in 2003 when he used to own things

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