A Reprieve for Sumner Redstone
It's starting to look like embattled mogul Sumner Redstone will have a reasonably happy—or at least quiet—Hanukkah after all. The 85-year-old majority owner of CBS (CBS) and Viacom (VIAB), who is struggling to restructure $1.6 billion in defaulted debt, won't have to meet a Dec. 19 deadline that many had assumed was imposed by a bank group led by Bank of America (BAC). At this point, according to people with knowledge of the talks, there is no strict deadline by which Redstone must sell assets or otherwise restructure the debt. The various parties, which include more than 50 debt holders and several banks, are expected to continue talks at least through the end of the year.
Redstone, who controls 80% of the Redstone family-owned National Amusements, formally defaulted on at least some of the $1.6 billion in mid-October, sources say. At the time, National Amusements issued a statement in which it said that its management was "engaged in constructive discussions with its bank group and noteholders regarding a covenant issue under NAI's debt, which is unsecured." Those discussions led to Redstone's initially saying that he intended to sell $400 million worth of CBS and Viacom stock "to pay down debt to comply with [NAI's] covenants" although Redstone later sold only $233 million to satisfy the bankers. At the time, the assumption was that Redstone would be required to settle up half the $1.6 billion amount by Dec. 19, when his unsecured bank lines originally came due.
Buyers Are Needed for Assets
What is clear now is that the banks relented. A Redstone spokesman declined to comment on Wednesday, Dec. 17.
"He had already defaulted once, he couldn't default a second time," says a source with knowledge of the talks. "There was really nothing the banks could do to him to make him pay by Dec. 19." It appears the bankers intend to allow Redstone additional time to sell assets to avoid a fire sale, which would hurt prices. According to those who have seen briefing materials prepared for the talks, Redstone has offered to sell a large number of National Amusements' 1,500 or so movie screens—and the banks appear to have agreed. The Redstone family is likely keeping the screens close to its suburban Boston base, including theaters in New York, New England, and possibly in Britain. In March, National Amusements opened an ultra-luxurious Showcase Cinema De Lux in Britain, which is expected to be a prototype of a chain of theaters that offer customers food delivery and other amenities. What the theater chain might fetch is unclear: Some analysts have put the price at as little as $500 million, while the Redstone camp believes it could be $700 million or more.
What is clear, however, is that the banks now appear likely to give Redstone added time to find a buyer. One potential buyer could be his daughter Shari, 54, who owns 20% of National Amusement and serves as the chain's chief executive. Through a spokeswoman, National Amusement declined to comment. The two Redstones have battled for years, including over the fate of the theater business (Shari is much more optimistic), and the younger Redstone has apparently hired her own investment bankers to explore how to set up a business divorce that would give her control of the theaters.
Other assets said to be on the block include National Amusements' 8% stake in video game equipment supplier WMS Industries (WMS), worth an estimated $108 million. On Dec. 1, Redstone sold National Amusements' 87% stake in video game maker Midway Games (MWY) for $100,000—taking a huge loss on a stake he had spent nearly $800 million to accumulate—to apparently set up a tax break estimated by one source "at a couple hundred million" to help pay down the debt. Together with the $233 million from divesting the CBS and Viacom stock, that could put Redstone within shouting distance of retiring half the debt.
Initially, Redstone was required to pay half National Amusements' $1.6 billion debt load on Dec. 19. But it is now likely to be repaid later, sources say. Finding a way to pay the second half, however, remains unresolved. It, too, is in default, but Redstone almost certainly needs to sell the theaters and, despite his protests to the contrary, most likely some of his still controlling shares of CBS and Viacom in order to settle the remaining debt. Those discussions could continue for weeks, and a potential sale of the assets could take a year or longer. For Redstone, who recently began divorce proceedings from his second wife, the debt respite is a bit of holiday cheer.