We have been wondering for some months if the avowed intent of veteran media leader Sumner Redstone to keep most of his assets would hold true. Redstone built the Viacom empire which included Viacom, Paramount Pictures, broadcaster CBS and DVD retail rental business Blockbuster, most of which have now been spun out and separated, but in which he (and his family) continue to hold sway through various levels of controlling voting shares in both CBS and Viacom.
But Redstone has borrowed deeply against his own shareholdings and has margin calls for debts of something like $1.6 billion, half of which is due in a few weeks, as reported in recent New York Times coverage. So something has to give.
Redstone now says that he plans to sell his family’s 1,500-screen theater chain in an effort to get his debt load under control
The truth is that bricks and mortar entertainment assets are once again worth less than in recent years. Once before, in the dotcom revolution, these types of assets were vulnerable, and one deal that came about at that time was the takeover of Time Warner by AOL, which led to the largest write down in US financial history. Once again anyone with the right type of assets, in particular cash, could suddenly step in to buy brand name entertainment assets. So watch out for at least one major in the entertainment business to change hands in the next 6 to 9 months even if it’s not a Redstone property.
Today CBS is worth just $4 billion and Viacom itself just under $9 billion. Go back a couple of years and these respective values were more like $20 billion and $23 billion.
Redstone has already been forced to make sales of critical stock in both Viacom and CBS and has privately said that he wants to retain control of Viacom, and is less worried about CBS. But that’s not the issue here. Once this recession and the run on the stock market begins to become even slightly predictable, people with cash mountains will move and suddenly high net worth private individuals, who always dream of owning major entertainment assets, will crawl out of the woodwork and deals will be done, and in some cases banks will barter debt for ownership, wait for the upturn and make a killing. If Redstone manages to keep all of his eggs from breaking it doesn’t mean that there aren’t another 10 similar, but smaller, deals waiting to be done in this sector
Redstone’s theater chain would once have been more than enough collateral for his debts, but today is a very difficult period for evaluating the worth of a media that some believe has seen its best days.
The New Your Times reckons analysts say the theatres are worth $500 million and that Redstone thinks they are worth double this.
He has other assets to sell, held by his National Amusements holding company, including control in Midway Games, but nothing that is big enough on its own to help the beleaguered mogul out.