Sumner Redstone’s 25 year-old investment in the money-losing video game company, Midway Games may be the real cause behind his current financial woes.
Mr. Redstone has always argued — not incorrectly — that video games are part of the media industry’s future. But Midway, which is best known for the 1990s arcade game Mortal Kombat, has eaten up a lot of quarters without much return. Midway has not reported a profit since the second quarter of fiscal 2000, and over the last three full fiscal years the company has lost $258.9 million.
Michael Pachter, an analyst at Wedbush Morgan Securities, estimated that Mr. Redstone has spent $500 million to $700 million on Midway shares since 1983. In late 2005, the company traded at $23 a share; last week, it closed at about 80 cents.
As a result, National Amusements — Mr. Redstone’s holding company — has been forced to support the company with loans. This year it extended some $90 million to Midway to keep it afloat.
Meanwhile, Redstone is still considering selling off part of National Amusements to satisfy debt agreements with lenders. But he’s sticking to his statement that he wouldn’t sell CBS or Viacom. Instead, the NY Times claims he’s considering selling a financial interest in National Amusements.
Mr. Redstone has publicly insisted that he would not sell more stock in CBS and Viacom to cover his personal debts. But he is considering selling a financial interest in National Amusements, the family holding company that is Mr. Redstone’s vehicle for controlling Viacom and CBS, according to an executive briefed on the matter who spoke anonymously because the negotiations were meant to be confidential.
The Wall Street Journal, meanwhile, notes that this is a possibility but suggests that Redstone’s real plan may be to sell some of National Amusements’ movie theatres.
WSJ: National Amusements Inc., which holds the family’s controlling stakes in CBS Corp. and Viacom Inc., among other things, has been in urgent discussions with lenders to restructure $1.6 billion of debt and escape a December deadline to pay off half of it. Those negotiations are far from over, but one thing is clear: The Redstones will almost certainly need to sell some holdings to bring their mass of loans and notes under control.
As their advisers explore options, two ideas have gained traction, people familiar with the situation say: selling part of the family’s movie-theatre chain, which Ms. Redstone runs and has expanded aggressively, or selling a stake in National Amusements, potentially diluting Mr. Redstone’s control, or at least diluting his returns. Both alternatives could cause a tussle between father and daughter…
Mr. Redstone and his daughter have long battled over the future of the movie-theatre business. Ms. Redstone, who bares a striking resemblance to her father, is a big believer in the theatres, and has labored to upgrade them and expand the business abroad, moves that contributed to the company’s debt burden. Despite making his start in that business, Mr. Redstone doesn’t believe in it, and has at times pushed to sell it.
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