NEW YORK (Reuters) - Sumner Redstone managed to halt, at least temporarily, major drops in shares of CBS Corp (CBS.N) and Viacom Inc VIAb.N by repeating on Thursday his promise not to sell any more stock in either media company.
The media mogul also described talks with bankers over a looming debt crunch at his privately-held National Amusements as “proceeding in a smooth and constructive manner.”
Redstone’s attempt to reassure investors lifted shares of both CBS and Viacom on Thursday after they suffered drops in excess of 10 percent on Wednesday.
CBS shares were further helped by its announcement that it would pay a quarterly dividend of 27 cents a share, unchanged from the prior quarter, assuaging any lingering concerns that it would cut or skip the payment.
Viacom and CBS, controlled by Redstone and his privately held National Amusements, have been hurt by worries that a sharp pullback in advertising will undermine revenues. After years of steady growth, U.S. advertising is now forecast by some to fall 3.6 percent in 2009.
Adding to the downward pressure on both stocks are concerns that Redstone’s recent sale of CBS and Viacom shares would not be his last. Last month, Redstone’s National Amusements sold a about $230 million in shares of both companies to help meet debt obligations.
National Amusements, which also owns a 1,500-screen theater chain and controlling voting stakes in CBS, Viacom and Midway Games MYW.N, is now holding discussions with its banks in hopes of avoiding a more severe debt crunch.
National Amusements has about $1.6 billion in debt outstanding. Half of that, $800 million, will need to be repaid by year’s end.
“I am pleased that talks with National Amusements banks and noteholders are proceeding in a smooth and constructive manner,” Redstone said in a statement. “It is important to understand that the value of NAI’s assets well exceeds its debt and NAI has no intention of selling any stock of either Viacom or CBS.”
Redstone had promised previously — on at least three occasions — not to sell any more stock.
The question for investors is how Redstone will find a way out of the debt problem, and his choices have become the subject of widespread speculation.
Pali Research analyst Rich Greenfield weighed in earlier this week with a research report suggesting the best strategy for Redstone would be an outright sale of Viacom.
But Greenfield acknowledged that Redstone was unlikely to do so given his attachment to the company, and instead would probably look to sell Midway Games and the movie theater chain. But those moves may not be enough, he said.
“While Mr. Redstone has stated multiple times that he has ‘no intention’ of selling more CBS and/or Viacom shares and that NAI is having constructive talks with its lenders, we believe he may no longer have a choice,” Greenfield said in the report, issued on Wednesday.
Shares in CBS, which were trading at $6.21, up 14 cents, in mid-afternoon on the New York Stock Exchange, had traded as high a $28 last November. So far it’s down more than 75 percent this year.
Similarly, Viacom’s stock has dropped from a 52-week high of $44.97 reached last December to trade at $15.72, up 58 cents in mid-afternoon trade. Its shares have lost more than 65 percent. By contrast, the S&P Media Index .GSPME is down 46 percent year to date.
Additional reporting by Yinka Adegoke; Editing by Brian Moss