That was quick: After announcing on Friday his intent to sell shares in CBS and Viacom, Chairman Sumner Redstone (through his National Amusements Inc. holding company) said today the sale was complete. The sale — made, we’re told, in order to comply with debt covenants — raised $233 million for NAI. But what does this mean for the long term?
Barclays analyst Anthony DiClemente is concerned that a “negative feedback loop” could emerge. The thinking is that NAI’s credit agreement uses CBS and Viacom shares as collateral. So: Recession beats up shares in his two media companies, which means collateral diminishes, which forces him to sell, which beats up the shares even more, collateral declines, more forced liquidations, rinse, repeat: There’s your ugly feedback loop. Interestingly, Viacom is up today on the general market rally, while CBS continues to sink, down over 1 per cent.
So is CBS or Viacom a takeout candidate? Not until Sumner says it is. Valuations may start to look tasty — CBS is now just a $5 billion company — but since Redstone controls a majority of voting shares in both companies, they are effectively private companies that happen to be traded publicly (not unusual for big media cos). And today’s announcement specfically notes that no voting shares were sold. So until Sumner decides to hand over some or all of the control of his companies to outsiders, he’ll have only himself to blame for their decline.