Media Mogul Redstone: From Billionaire to Bankruptcy?
Monday, October 20, 2008 | Marie AlbinRedstone’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 (CBS) and Viacom (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 CBS 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.
In addition, there are rumors swirling that Sumner Redstone and his second wife, Paula Fortunato, are separating after five years together. Redstone’s first marriage ended after 55 years of marriage in 1999.
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Marie Albin
Managing Editor
The Tycoon Report
Economic Calendar for the week of October 20 to October 24
Monday, Oct. 20
10:00 Leading Indicators
- Importance (A-F): This release merits a C-.
- Source: The Conference Board.
- Release Time: 10:00 ET around the third week of the month for the month prior.
- Raw Data Available At: http://www.tcb-indicators.org/.
The Leading Indicators report is, for the most part, a compendium of previously announced economic indicators: new orders, jobless claims, money supply, average workweek, building permits, and stock prices. Therefore, the report is extremely predictable and of very little interest to the market. Though this series does have some predictive qualities, it is a common criticism that it has predicted "nine of the last six" recessions.
The Commerce Department previously published the leading indicators series. The collection and publishing of these data is now done by the non-profit Conference Board, which also produces the Consumer Confidence index.
Big Picture
The leading indicators index is only valuable as a broad, general, indicator. The five straight monthly declines through February gave way to steadier trend starting in March. The index may well continue near flat in the third quarter. The trends late last year and early this year predicted a recession which never arrived. The credibility of the index as a forecasting tool is thus very much in question, as it has been for years. The index does not take into account the impact from the fiscal stimulus, and the fact that second quarter real GDP will be reasonably strong despite the flat trend in this index raises further questions about its current usefullness.
Friday, Oct. 24
- Importance (A-F): This release merits a C.
- Source: The National Association of Realtors.
- Release Time: 10:00 ET around the 25th of the month (data for month prior).
- Raw Data Available At: http://www.realtor.org/research.nsf/pages/EHSdata.
The name speaks for itself - this report provides a measure of the level of sales of existing home sales. The report is considered a decent indicator of activity in the housing sector. Housing starts precede this report each month, but starts are a supply rather than demand-side indicator. Existing home sales precede the other key demand-side indicator of housing - new home sales - thus boosting the visibility of this report. Sales are highly dependent on mortgage rates, and will tend to react with a few months lag to changes in rates. Sales are also determined by the level of pent-up demand for housing - immediately after a recession, sales are typically quite strong due to the demand which accumulated through the recession.
The survey sample for existing home sales is larger than that of new home sales, making it somewhat less susceptible to large revisions. Both reports can see huge month-to-month swings in winter, when bad weather can significantly affect sales.
Aside from total sales, two other indicators are worth watching in this report -- the inventory of homes for sale and the median price. The inventory of homes for sale at the current sales pace is the inventory/sales ratio of the housing sector. For example, a 5.0 figure for inventory/sales indicates that the supply of homes for sale would be depleted within five months at the current sales pace. The lower this figure goes, the greater the need for new housing starts. The year/year change in the median price provides a good indication of inflation in home prices.
Big Picture
Demand in the housing market has bottomed. Existing home sales remain at very low levels, but they have also leveled off the past eight months. The July sales rate of 5.00 million was 1.8% above the level of last December, and the sales rate has been steady through most of 2008. Inventories remain high, and that will pressure prices, but there is finally some light at the end of the tunnel. Demand has to bottom before prices, and that has started. The housing market remains depressed and will remain so as evidenced by the jump in inventory. The silver lining is that the pace of home sales declines is slowing, which is an attribute of a bottoming process, although a significant rebound is still a long way off.
