Stephen’s Posterous

A Los Angeles Times Blog reported that Sumner Redstone and his privately held company, National Amusements Inc., has negotiated its debt restructuring.

However, it was revealed in a regulatory filing on May 5, 2009, that both Viacom and CBS are used to secure Mr. Redstone's $1.46 billion in debt. Mark your calendar as the debt must be repaid by December 31, 2010. National Amusements is still working on selling its 1,500 plus movie theaters, but this may not be enough to retire the debt.

If Viacom and CBS stock rise in value, Mr. Redstone will be in a better position to pay off his debt rather than liquadate is entire holdings.

On May 1, 2009, the Wall Street Journal said that Viacom reported a 34% slide in their first-quarter net income to $177 million as it's cable-television advertising sales took a hit. It counts on advtertising for 30% of its annual revenues.

International home entertainment revenue dropped 26% or $60 million leading the company to warn in an SEC filing that this weak market may continue through 2009 and affect its home entertainment revenue. The article pointed out that Viacom stated that it is seeing signs of stabilization in the current market after a sharp decline in the first quarter.

On May 6, 2009, Viacom was trading between $21.93 and $22.80. The 52-week high is $40.26, and the 52-week low is $13.00. CBS was trading between $7.35 and $7.92 with a 52-week high of $25.00 and a 52-week low of $3.06.

When Liberty Media executives joke, the markets roar. So appeared to be the case on April 17, 2009, when CBS stock soared 20%. The big rise undoubtedly was influenced by hopes about an ad rebound, which likely accounted for the lift in all big media stocks the week of April 13. But the surge on April 17, in CBS may have received an extra kick from a jesting comment made by Liberty CEO Greg Maffei at an investor meeting April 16.

Asked what Liberty might do as an encore to its well-received investment in Sirius XM Radio, Mr. Maffei joked that Liberty might buy Sumner Redstone's controlling stake in CBS, sell off its broadcast-TV stations and turn the CBS broadcast network into a cable network.

Even if he was serious, such a plan has certain impracticalities. Mr. Redstone has ruled out selling. And unwinding the stations' affiliation agreements with the network couldn't be done overnight. Even so, it's a good bet anyone who had sold CBS short didn't appreciate Mr. Maffei's humor. Source.

The analysts said they hadn't heard of any fundamental news pushing up shares of CBS Corp, but some pinned the double-digit percentage gains on hopes that the broadcast-advertising market may have reached a bottom.  The hopes were based on comments about the advertising market by Gannett Co. Inc. (GCI) and Media General Inc. (MEG) during recent conference calls, which analysts characterized as less pessimistic than in recent quarters.

"Although lower, our advertising category stabilized over the course of the quarter, both here and in the U.K.," Gannett Chairman and CEO Craig Dubow said on a call Thursday, according to a transcript provided by FactSet Research. Media General, meanwhile, said on a conference call, according to a transcript provided by FactSet, that it has seen some stabilization in its revenue forecast in the last two to three weeks, which could reflect better consumer confidence.

Still, Gannett, the largest U.S. newspaper publisher, said on April 16, that its first-quarter profit plummeted 60% because of further declines in classified and other advertising at its newspapers and television stations.And early on April 17, Media General said its first-quarter loss widened slightly from the year-earlier quarter on costs related to job cuts and other special items, as well as steep declines in advertising revenue at its newspapers and television stations.

Despite the gains, CBS stock is still far below the 52-week high it set last May of $25. CBS' gains Friday outpaced those posted by other media companies, including Gannett, which rose 7.8% to $3.88, and New York Times Co. (NYT), which surged 13% to $6.69. Meanwhile, Media General was recently down 13% to $2.58.

Analysts say CBS is the media sector's most-heavily exposed company to the advertising market, and as a result, its shares have fallen more than its peers in the last year.

Source.

CBS's decision to cut its dividend by 80% is sure to send some income-oriented shareholders sprinting for the exits. It wouldn't be a surprise if Sumner Redstone ends up following them. Admittedly, the CBS chairman has vowed not to sell any more shares. But he can change his mind, particularly if there was a buyer available.

A sale would be the logical follow-up to his decision to split CBS from Viacom in 2005. It is understandable that he didn't sell right away. CBS's dividend surely helped service Mr. Redstone's personal debt.

But now his annual CBS dividend income will drop to $14 million from about $76 million. That could last a while. CBS said Thursday that given the uncertain credit markets, it wants to be able to "self fund" all of its debt maturities between 2010 and 2012, which total $3.2 billion. UBS estimates CBS's free cash flow through 2012 will total only $3.6 billion.

Even when the economy recovers, the secular shift of ad dollars from broadcasting to other media suggests CBS's earnings won't return to their past highs. Of course, it would have made more sense for Mr. Redstone to sell when CBS was trading near $35 in mid-2007, instead of its current price around $5. But if history is any guide, he won't let that stop him.

Consider: Mr. Redstone's Viacom said in late 1999 it wouldn't unload its majority stake in Blockbuster unless the video chain's shares, then trading around $15, rose above $20. Blockbuster shares hit $29 in 2002. But Viacom didn't decide to divest until February 2004, with the shares around $17. Still, he made the right call. Today's price: just over a buck.

Source.

Sumner Redstone, under pressure to restructure his family company's $1.6 billion in debt, said Thursday that "substantial progress" had been made in talks with banks.

"An agreement acceptable to all parties is now within reach," the 85-year-old Redstone said during a conference call to discuss Viacom Inc.'s quarterly earnings.

Leslie Moonves sometimes gives the impression he could see a glass as half full even if it was upside down. But the advertising slump is surely testing even his optimism.

That is why what CBS says about its dividend next week, when it reports earnings, will be significant. A reduction would be an acknowledgment that despite the CBS CEO's frequent upbeat statements, such as his Jan. 6 comment that he felt "much more optimistic" in 2009 than in 2008, CBS wants to preserve cash to meet $1.6 billion of debt obligations due next year.

That the environment demands such action is clear. Just Wednesday, TV station owner Sinclair Broadcast Group said it was suspending its dividend while predicting station revenues will drop more than 20% this quarter. And with CBS shares now trading with an implied dividend yield of 18%, Wall Street is clearly expecting a dividend cut.

The only real question is by how much. Mr. Moonves affirmed as recently as December his intention to "pay a solid dividend for the indefinite future." But in January he also noted, "we will do what's necessary to keep our businesses flowing" and would "look at our free cash flow."

On that basis, eliminating the $725 million dividend payout is probably necessary. Sanford C. Bernstein forecasts CBS's free cash flow will drop to $800 million in 2009 from $1.2 billion in 2008.

A big cut won't help Sumner Redstone, CBS's heavily indebted controlling shareholder, who has received about $88 million in dividends in the past year. But as family shareholders in newspapers have found, long-term health trumps short-term needs.

Source.

Sumner Redstone has sold his 87% controlling stake in videogame company Midway Games to private investor Mark Thomas, which represents a big loss on the media mogul's investment but secures a hefty tax benefit. Source. National Amusements is in negotiations with its banks to restructure its $1.6 billion debt pile after breaching one of its debt covenants. The restructuring includes selling some of its movie theaters and a holding in slot-machine company WMS Industries. The sale of the Midway stake marks the end of a tumultuous investment for Mr. Redstone. He poured hundreds of millions of dollars into Midway Games only to see his investment fizzle as the company failed to create new hit games and watch its stock collapsed. Source.

Is a voting share in Viacom more valuable than its more common nonvoting sibling? Investors appear to think so as the spread between the two stocks has grown. The spread between Viacom's A class voting shares and B class nonvoting shares has widened to roughly 10% since mid-October when news broke of financial pressures on Viacom's controlling shareholder Sumner Redstone. It may be that the spread is caused by funds selling the more plentiful B shares rather than the tightly held A's. But it may also be a bet by some traders that in any sale of Viacom, the company's A class shares--81.6% of which are owned by Mr. Redstone--will benefit more than the B's. Mr. Redstone only owns 3% of the B's. Viacom's A shares closed at $16.21 and the B shares closed at $15.08 on December 2, 2008.

It is a somewhat risky bet, but a buyer theoretically could get control of Viacom by buying Mr. Redstone's voting stake. As his Viacom A shares have a market value of about $750 million, compared with Viacom's total market capitalization of about $9 billion, buying his A's only would be far easier to finance. Are any hedge funds interested? Probably not in this environment. Such a deal would pose serious obstacles for most potential buyers. But with Mr. Redstone under serious pressure, and in a bear market as brutal as this, anything is possible. Source.

It is a not so Happy Thanksgiving for Mr. Redstone as he is looking at selling all of his 1,500 National Amusements cinema chain after receiving some interest from potential buyers. Breakingviews.com reported that publicly-traded Regal Entertainment and Cinemark have an enterprise value equivalent to about $400,000 per theatre screen so National Amusement’s 1,500 screens could be worth about $600 million. Mr. Redstone believes that he can get $1 billion from the sale. He owes $1.6 billion, of  which $800 million matures on December 19, 2008, but the deadline could be extended. Mr. Redstone may have to sell more CBS and Viacom stock. Breakingviews.com said that this is similar to the fate of several cash-strapped Russian oligarchs who leveraged their stock holdings only to lose everything when stock markets crashed. CBS is down 80% and Viacom is done about 67% for 2008. It appears Mr. Redstone may be interested in selling CBS stock, but would prefer not selling Viacom stock. This is a follow-up on a previous post. Source.