Selling shares to save empire

A year after it looked like Sumner Redstone’s media empire might collapse under a mountain of debt, the 86-year-old mogul found a way to keep his grip on Viacom Inc., CBS Corp. and other prized assets.

On Wednesday, Redstone’s privately held National Amusements Inc., the controlling shareholder of Viacom and CBS, said it would sell nearly $1 billion in stock in those companies to help retire $1.46 billion in debt.

Redstone plans to sell all of his nonvoting shares in the two entertainment giants -- which could yield as much as $600 million from Viacom and as much as $345 million from CBS. The proceeds would allow Redstone to more than cover a $500-million debt payment due this month.

National Amusements will further pay down debt by unloading 35 of its 79 U.S. movie theaters, including the Bridge in Los Angeles and many in the Midwest.

Redstone’s Dedham, Mass., company, the fifth-largest theater operator in the country, is holding on to its cinemas in New England and New York as well as its profitable circuits in Britain and Brazil. National Amusements had always planned to retain its theaters in Russia, a burgeoning market.

Analysts said the moves stabilize Redstone’s finances.

“It relieves the pressure for now,” said longtime media analyst Harold Vogel. “To the extent that the economy remains strong for the next year or two, he ought to have a clearer road ahead.”

Dramatic gains in the stock prices of his two entertainment companies have staved off disaster. In the last seven months, Viacom shares doubled in value and CBS shares tripled. The broader market rally -- the Dow topped 10,000 on Tuesday for the first time in more than a year -- provided Redstone with options he did not have even a few months ago, when he would have lost control of both companies had he been forced to sell such huge blocks of stock.

Redstone initially had planned to divest most, if not all, of National’s 100-plus theaters to help cover the looming debt payments. National Amusements put the “for sale” sign on the theaters this year.

But as the auction dragged on, media stocks rebounded, allowing Redstone to avoid a fire sale. Moreover, many of the company’s theaters are on valuable property, and Redstone was reluctant to sell the chain at the bottom of the real estate market.

“This is a smart strategy for Sumner Redstone. He bought time from his banks during the credit crunch by creating an auction process for the theaters,” said Laura Martin, a media analyst with Soleil Securities. “Since then, the public equity markets have rebounded faster than the credit markets, so he’s selling equity to repay debt rather than selling his theaters at depressed prices where credit remains tight.”

A year ago, amid the financial market meltdown, Viacom and CBS stock prices plummeted, triggering a violation of National Amusement’s debt covenants. To quickly come up with cash to satisfy its lenders, Redstone sold $233 million worth of Viacom and CBS shares, causing the stock to tumble further. That prompted Redstone to repeatedly declare that he had no intention of selling more shares of Viacom and CBS to resolve his financial difficulties.

Redstone controls more than 80% of the two media companies. In addition to selling all the non-voting B shares, which will generate about $750 million, he will have to dip into his voting A shares to raise an additional $195 million.

According to people familiar with the situation, Redstone will convert those A shares into B shares rather than risk the voting shares landing in unfriendly hands.

The stock sales, which are expected to be completed next week, will decrease Redstone’s controlling stake in Viacom and CBS to 75%.

The sale of the theaters should generate about $350 million, according to people familiar with the situation. To come up with the remainder needed to retire the $1.46 billion in debt, Redstone plans to use proceeds generated from the sale of other “non-core assets,” including some real estate, as well as a sizable tax refund that came from the $800 million in losses from the sale of Redstone’s interest in Midway Games Inc., and perhaps a new loan -- albeit one that could be repaid with cash generated from the theaters.

Redstone’s resolution carried other, less tangible benefits. His daughter, Shari Redstone, who has run National Amusements for more than a decade, will not have to relinquish her role. The company is discussing with her a long-term employment contract that would provide her additional security. The father and daughter have been feuding for two years over succession and other issues.

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