Is Paramount Cutting Back So Shari Redstone Can Open Movie Theaters in Chile?

Wednesday, October 15 2008 @ 03:57 PM EDT

Stick with me on this one, it's kind of convoluted. A few days ago the Wall Street Journal reported that Sumner Redstone, CEO of Viacom, was about to be relieved of "$400 million, or about 20%, of his family's holding in Viacom Inc. and CBS Corp. to repay debt to comply with loan covenants." Basically the tide went out and Sumner was caught swimming without a bathing suit. But why was one of the sharpest dealmakers in the industry about to part with 20% of his family fortune? The Journal named his daughter, Shari Redstone as the culprit.

Apparently Sumner picked up a huge $1.6 billion loan so that Shari could expand the 1,500 screen movie theater chain she operates. When the properties that Sumner provided as collateral (Viacom, CBS, Paramount Pictures, etc.) lost value due to the market crash, part of the debt became due. As a result Sumner had to sell off the family the jewels. On Monday Sumner announced that he was able to negotiate the loss down to $233 million, not the $400 million that was originally reported. And again, the Journal reported that the loss was due to Shari's movie theater chain.

Shari finally struck back and released a statement yesterday that said she did not in fact cause her father to sell off those shares (at the worst possible time in the history of the stock market, I might add). While she does not dispute that her $1.6 billion loan got her family into this mess, she claims that her theater chain's expansion into Britain, Chile, and Argentina was not paid for by the loan. Nor was her massive investment into REAL D Digital 3-D projection gear for the opening of 'Meet The Robinsons' paid for by the loan.



Her claim is somewhat dubious, however, since the $25 million opening of Meet The Robinsons certainly did not cover those costs.

Wherever the money went, it's gone now. But Sumner still has a number of properties that are at risk (Viacom continues to act as collateral for the loan). Which brings us to today's announcement that Paramount is cutting back production by 25% to lower costs. Paramount blames the cutbacks on "the economic slump", but could the reason for the cutback simply be that Shari Redstone wants to expand her movie theater chain and the rest of the Viacom family has to suffer for it?

Shari vehemently dies it, but I think she doth protest too much. Studio work is going to be lost because of the financial ills of the Redstone clan, and while the "economic slump" is a convenient scapegoat, it appears that all of this could have been avoided if Shari had simply managed her theater business better. Maybe she could have just purchased her dad a tie for father's day instead of all that REAL D gear.

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