Redstone scrambles to pay debt, salvage empire

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

Redstone plans to sell all of his non-voting shares in the two entertainment giants — about US$600 million of Viacom and US$345 million of CBS. The proceeds will allow Redstone to more than cover the US$500 million debt payment due later this month. In addition, National Amusements will further pay down debt by unloading 35 of its 79 U.S. movie theaters. Redstone's Massachusetts-based company, the fifth-largest theater operator in the country, is holding onto its cinemas in New England and New York as well its profitable circuits in the United Kingdom and Brazil. National 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 long-time 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.”

Credit dramatic gains in the stock prices of his two entertainment companies for staving off disaster. In the past seven months, Viacom shares have doubled in value, and CBS shares have tripled. The broader market rally -- the Dow topped 10,000 on Tuesday for the first time in a year -- provided Redstone 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 had initially planned to divest most, if not all, of National's 100-plus theaters to help cover the looming debt payments. National put the “for sale” sign on the theaters earlier this year. But as the auction dragged on, media stocks rebounded, allowing Redstone to avoid a fire sale. Moreover, many of National'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, 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.”

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