Redstone Family Rift Revisited10/17/2008 8:00 PM Eastern
A forced stock sale has apparently opened up some old wounds between Viacom chairman Sumner Redstone and his daughter Shari, reigniting a feud that some had believed was stamped out months ago.
Last Friday, National Amusements, the Dedham, Mass.-based theater chain that holds the majority of the Redstone family’s interest in Viacom and CBS, said that Sumner Redstone would sell up to $400 million in the stock of both companies to pay down debt to comply with loan covenants under NAI’s credit agreements, estimated to be about $1.6 billion. On Oct. 13, NAI revealed that Redstone sold about $233 million of the nonvoting shares — 7 million shares of Viacom and 17 million shares of CBS.
But some published reports blamed the need for the sales on NAI’s operations, helping to stoke criticism that National Amusements may have wasted money building lavish movie theaters in an industry that has been in decline. That prompted NAI — headed by Shari Redstone — to fire off its own statement.
In the statement first issued to The Wall Street Journal, National Amusements said that the recent freefall in the stock market forced Sumner Redstone to sell shares, not the operations of the theater chain.
“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,” NAI said in a statement. “The implication that this stock sale was required by the operation and expansion of the company’s theater circuit is not accurate.”
That statement appeared to rekindle a battle that began not long after Shari was named vice chairman of Viacom and CBS in 2005 and escalated last year, when Sumner Redstone sent a letter to Forbes magazine offering to buy out his daughter’s 20% interest in the two companies if the price was right. The two had been at loggerheads for months prior, with Sumner Redstone criticizing the theater business, calling it a no-growth venture, and publicly questioning his daughter’s ability to run the company.
|Reversal of Fortune|
|Viacom and CBS shares have been pounded this year, losing more than half of their value in the past 10 months through a combination of recessionary fears, poor performance and unprecedented market volatility.|
While Shari had raised some eyebrows in the past by investing in luxury theaters, Pali Research analyst Rich Greenfield estimated that privately-held NAI probably is performing in line with public competitor Regal Cinemas. Greenfield estimated that NAI has revenue of about $600 million and cash flow of about $100 million annually — so the theater chain is probably on the mark when it claims that operational issues did not spark the sale. But he wondered whether some recent luxury theater projects have added to debt.
In August, NAI unveiled the Cinema de Lux at Patriot Place, the latest iteration of its Lux Level concept, a line of upscale theaters complete with posh lobby areas (including a grand piano), large, comfortable seating and exotic menu items such as duck tacos.
Both Viacom and CBS shares have been hammered this year — Viacom stock is down more than 50% and CBS has declined 67% — in a combination of recessionary fears, a shrinking advertising market and performance that has lagged its other broadcast and cable network peers. In the second quarter, Viacom reported domestic ad sales growth of 1% — short of the 3% growth it had earlier predicted and the double-digit growth enjoyed by peers like Time Warner Inc.
Earlier in October, Viacom reduced its earnings estimates for 2008, in part because of the weak advertising market. Viacom said it expected worldwide ad sales to decline by 2% in the third quarter — a 3% decline domestically, offset slightly by an expected 8% gain in international ad sales.
“Given the rapid softening of the economy and the uncertainty this creates in forecasting advertising growth, we are taking the prudent step of moderating our near-term targets,” Viacom CEO Philippe Dauman said in a statement announcing the reduction in guidance Oct. 10.
Greenfield noted in a research report that the most surprising element of last Monday’s forced sale was that “nobody was aware that Mr. Redstone had put substantial leverage on National Amusements backed by Viacom and CBS shares.” The analyst added that Redstone’s apparent need to hire a crisis-management public relations firm (Sard Verbinen & Co.) to handle communications highlighted “speed and seriousness at which Mr. Redstone’s situation developed.”
Viacom spokesman Carl Folta said the media giant had no comment.