How's Sumner Redstone Holding Up?

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Includes: CBS, MWY, VIA
by: Marie Albin

Media mogul Sumner Redstone is embroiled in his own credit crisis brought on by the market’s savage sell-off.

Redstone’s National Amusements, which is privately held and controlled by the Redstone family, is scrambling to renegotiate a $1.6 billion loan – $800 million of which is due for repayment by mid-December.

Redstone, who is Chairman of CBS (NYSE:CBS) and Viacom (NYSE:VIA), was forced to liquidate 24 million shares of CBS and Viacom stock worth $235 million in an attempt to satisfy National Amusement’s loan covenant agreements, which were violated when shares of CBS and Viacom crashed.

CBS and Viacom shares have fallen approximately 60% this year.

Redstone’s CBS and Viacom shares were not collateral for the loan, but the covenant stipulated that if the shares fell beyond a certain point, the loan would be called. The shares were non-voting shares, but there is speculation that Redstone may be forced to sell additional shares, possibly even voting shares, to raise more money.

Merrill Lynch media analyst Jessica Reif Cohen wrote in a report Friday that continued negotiations with bankers "suggests to us the stock sales were not sufficient to resolve covenant issues and that further action could be necessary."

National Amusements and Redstone own the 1,500 screen theater chain of the same name and controlling stakes in video game maker Midway Games (MWY) as well as and Viacom – which owns Paramount Pictures, MTV, BET, Comedy Central and Nickelodeon and others.

Much of Redstone’s wealth is tied up in National Amusements. In March, Forbes listed Redstone as the 137th richest man in the world with a net worth of $6.8 billion. In a July MSNBC interview, his net worth was reportedly just over $4 billion – a stunning $2.8 billion loss in four months.

And it’s a fair bet that Redstone’s fortune has shrunk considerably since then. CBS shares were at $36 a share in July, now they are at $9. Viacom shares were trading around $30 in July and are now trading at $19. Plus, the value of National Amusements’ 89% stake in Midway Games has been cut in half since July.

The 85-year-old media titan has been the center of controversy lately.

Redstone’s daughter Shari Redstone, who runs the movie theater chain, is heading up the committee to renegotiate the loan. But father and daughter have feuded frequently about the succession of National Amusements and the controlling interest in CBS and Viacom.

Shari Redstone had been regarded as the heir-apparent to the media company and its holdings, but Sumner Redstone has indicated that it’s not a done deal. The two have been in negotiations for Shari to give up her 20% stake in National Amusements in exchange for the movie theater chain, but those talks have stalled.

The Wall Street Journal indicated in a report that Shari’s decision to expand the theater chain was the reason that the company had taken on so much debt. But Shari disputed that accusation in a statement released by her company.

"The implication that this stock sale was required by the operation and expansion of the company's theater circuit is not accurate. National Amusement's recent sale of a portion of its Viacom and CBS non-voting stock was the direct result of last week's historic financial crisis, which included the precipitous drop in value of CBS and Viacom stock," argued Shari.

Disclosure: none