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Cure for the Redstone overhang: Sell Viacom and CBS stock!

October 20, 2009 |  6:11 pm

Usually when the chairman of a company dumps nearly $1 billion in stock, share prices tumble off a cliff.

But apparently not when it's Sumner Redstone.

Wall Street has dubbed the phenomenon the "Redstone Overhang." For the past year, investors have been cautious about Viacom Inc. and CBS Corp. stock after learning that Redstone's privately held company, National Amusements Inc., was in violation of bank covenants and struggling to pay its $1.6-billion debt. That caused a wave of jitters because National Amusements is the controlling shareholder of Viacom and CBS. Investors were worried that if National had been forced into bankruptcy, Viacom and CBS might suffer collateral damage.

REDSTONE But last week, the 86-year-old mogul -- who late last year vowed he had no intention of selling more CBS and Viacom stock -- said he would sell all of his common B shares of the media companies to pay down National Amusement's debt.

Investors cheered, and the stock of CBS and Viacom began to climb.

A week ago, the day before it was disclosed that National was selling more stock, Viacom B shares closed at $28.70  Today, they ended trading at $29.51 -- near the 52-week high. 

CBS stock has experienced a more dramatic bounce.  A week ago, CBS B shares closed at $12.15. Today the shares closed at $13.82.  That's more than three times the price fetched earlier in the year when CBS was trading for a meager $4 a share. 

In a regulatory filing this afternoon, Viacom said that National Amusements had completed its sale of 21.3 million Viacom B shares for $602.3 million.

CBS separately said Redstone had unloaded 28.6 million CBS B shares to generate $343.7 million. 

The $946 million raised in the stock sales will not entirely go toward paying debt. Commissions and taxes also must be paid. Still, the rising share prices during the last six months gave Redstone room to maneuver.  He was able to sell nonvoting stock to substantially pay down National's debt -- and preserve his empire and controlling stakes in Viacom and CBS by holding onto his voting A shares.

-- Meg James  

Photo: Sumner Redstone. Credit: AP Photo/Matt Sayles

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