Billionaire Sumner Redstone got caught in the credit crunch Friday.
The 85-year-old mogul, who has long bragged about his financial savvy and competitive drive, was forced to sell a fifth of his family's stake in his two media companies -- Viacom Inc. and CBS Corp. -- on a day when the companies' shares were trading at record lows. It shows that even the wealthiest people are not immune to the meltdown in the markets and are being thrust into once-unimaginable situations.
On the most volatile trading day in the stock market's 112-year history, Redstone's family's holding firm, National Amusements Inc., had to dump $400 million of nonvoting B shares in Viacom and CBS to raise cash to "pay down debt to comply with covenants under [the company's] credit agreements," according to a statement from National Amusements.
"This was a margin call in the broadest terms," said Hal Vogel of Vogel Capital Management, a longtime media analyst and investor. "When the banks don't renew your credit, you get a margin call and that is, in effect, what happened to National Amusements."
A spokeswoman for the closely held firm, which operates a chain of about 1,500 movie theaters worldwide including the Bridge in Westchester, declined to comment.
Redstone's credit troubles set off a chain reaction with damaging consequences for CBS and Viacom.
Regulations require companies to publicly provide financial guidance whenever insiders sell large blocks of stock shortly before earnings reports are released. CBS is scheduled to release third-quarter results Oct. 30, and Viacom on Nov. 3.
The revised guidance issued Friday was bleak. Both Viacom and CBS lowered earnings estimates, blaming the world financial crisis for weaker advertising sales. They said the situation could get worse.
"Given the rapid softening of the economy and the uncertainty this creates in forecasting advertising growth, we are taking the prudent step of moderating our near-term targets," Viacom Chief Executive Philippe Dauman said in a statement.
Dauman said Viacom, which owns cable channels including MTV, Nickelodeon and Comedy Central along with the Paramount Pictures studio, would move to "quickly adapt to the changing environment" and "take appropriate steps to secure new efficiencies." Viacom executives declined to elaborate or say whether there soon would be job cuts.
