Will Shari and Sumner Redstone Split?

Daughter Shari may want to break up the National Amusements family empire in a debt restructuringbut would her dad deal?

As family feuds go, few have been more intractable than the one that has simmered between media mogul Sumner M. Redstone and his daughter, Shari. For two years the pair has battled over the direction of National Amusements, the family company that owns a national chain of movie theaters and controls the media giants CBS (CBS) and Viacom (VIA), which owns MTV and Paramount. At one point the estrangement ran so deep that Shari, 54, and Sumner, 85, communicated by fax.

Now, crushing debt problems that threaten the viability of the family business could force a denouement of sorts. Redstone intimates say Shari, who is president of National Amusements, may try to use the family crisis to break free of her sometimes overbearing father, who is chairman. Dad and daughter declined to comment, but a former Redstone executive says: "The debt issue may give Shari her opening to get a divorce [from dad]."

The catalyst is $1.6 billion in debt, half of which expires on Dec. 19. Because of reasons related to conflicts of interest, Sumner can't involve himself in negotiations to restructure the debt. So Shari is leading the talks with National Amusements' lenders, including Bank of America (BAC). One solution, say insiders, is to sell a stake to private investors and split the company in two: She would get the theater chain, and Sumner, who has cooled on the cinema business, would get the TV and other assets. Shari tried a similar maneuver last year, only to be thwarted by her father, who controls 80% of National Amusements vs. Shari's 20%.

Now she may have the leverage. On Nov. 7, Shari quit as chairman of Midway Games (MWY), a second-tier video game company that Sumner added to the National Amusements fold a few years ago against her wishes. Insiders believe she aims to offer Midway to dad as one of the assets he might accept in exchange for splitting the family firm in two.

Sumner is not going to go quietly. "This is all about his image," says a longtime associate. "He doesn't want anyone to think Shari forced him into anything." And, of course, that 80% stake gives him real clout. True to form, Sumner recently told analysts that National Amusements theaters sit on valuable real estate that can be sold off. Given the state of the property market and the economy, this is unlikely to happen quickly enough to reduce the debt and keep creditors at bay.

Sumner does have another option, but it's one he is loath to exercise: selling off parts of his beloved entertainment empire. Having already cashed out $233 million worth of CBS and Viacom shares last month to satisfy previous demands from the banks, he has said he won't do that again. Could he sell all of CBS? That would be problematic because it pays the theater chain a much needed $19 million in dividends each quarter, according to analyst Richard Greenfield of Pali Research. Sumner could sell other assets, including slot machine maker WMS Industries (WMS) and Midway. But the two companies wouldn't fetch enough to pare down the debt. If Sumner insists on hanging on to both Viacom and CBS, says Greenfield, the only other option would be to sell the theater chain as well.

Which brings us back to Shari, who of course wants the cinema property for herself. National Amusements won't say whether it is actively seeking investors. But insiders say Shari is considering an equity infusion that would let her pay off some debt and run the company without her dad looking over her shoulder.

    Before it's here, it's on the Bloomberg Terminal.