Most stocks were up Wednesday, but it was a roller coaster ride for the shares of CBS and Viacom, after National Amusements Inc. (NAI) announced plans to sell $600 million of Viacom stock and $345 million of CBS stock. Sumner Redstone had said repeatedly that he had no intention of selling any more of NAI’s stake in the two media companies to resolve its financial standoff with lenders, but reversed that with the latest announcement.
CBS (Class B) dropped from the opening bell and quickly went to the day’s low of $11.78, but rebounded to flat at mid-day and closed up 37 cents at $12.52. Viacom (Class B) had a similar day, dropping as low as $28.04 in early trading, then crossing back over the line to close up 21 cents at $28.91.
NAI had been shopping many of its movie theater holdings in an attempt to pay down what had been $1.6 billion of debt. The Los Angeles Times reported that had been whittled down to $1.46 billion over the past few months, but a $500 million principal payment was due before the end of this month. Meanwhile, the share prices for both CBS and Viacom had been moving up. So, in the end, NAI elected to sell only part of its US theater chain and raise nearly $1 billion from selling CBS and Viacom stock.
“As a result of our actions, National Amusements will be out of debt with its existing creditors and will still control its most important assets. We believe in the significant long-term value of Viacom and CBS Corporation, both of which are well-positioned for growth in this improving economic environment. Similarly, with leadership positions in key domestic and international markets, National Amusements theaters have outstanding near and long-term prospects,” said Sumner Redstone, Chairman and CEO of National Amusements in a statement issued by the company.
“NAI has no intention to further reduce its ownership levels in CBS and Viacom and will retain in excess of 75% of the voting control of each company after giving effect to the offerings,” NAI said. Of course, that’s what Redstone had said before.
Wall Street analysts say the stock sales remove an overhanging issue for both CBS and Viacom.
“Since October of last year when the surprise share sales by National Amusements only partially mollified its debt situation, the issue of potential larger share sales has continued to act as an overhang on both CBS and Viacom stocks. In particular, because National Amusements had been slow to divest of its theater assets, there was continued concern that share sales were in the pipeline. With this final transaction, we believe that the issue is largely laid to rest,” wrote Thomas Weisel Partners analyst Benjamin Mogil in a note to clients.
In announcing the planned stock sale by its largest shareholder, CBS Corporation also re-affirmed its full year 2009 operating income before depreciation and amortization (OIBDA) of $1.725-1.925 billion.
“We are not overly surprised by the fact CBS reaffirmed its full year guidance given that we continue to hear that trends in the television and radio have been improving. However, the stock sales were a surprise given that NAI had no intent to sell further shares after the last time it sold CBS stock (17m shares of CBS Class B stock on 10/13/2008). Though this will likely put pressure on the stock in the near term, we believe that the resolution of NAI’s debt issues is a positive and will eventually remove the NAI overhang,” wrote analyst Marci Ryvicker at Wells Fargo Securities.
RBR-TVBR observation: A few years ago the SEC considered a rule to ban publicly traded companies from having shares with disproportionate voting rights. It was overwhelmingly supported by the shareholding public, but killed off by the Wall Street elite. We have to wonder why the people who own the majority of CBS and Viacom stock are forced to suffer for the erratic financial maneuvers of the minority owner, Sumner Redstone.