National Amusements to Raise $1 Billion in Stock Sales at CBS and Viacom

Sumner Redstone's National Amusements Inc. is looking to pay down some of the company's $1.6 billion of debt through a secondary offering of shares at Viacom and CBS. The aim is to raise around $600 million at Viacom and $345 million at CBS. The news was greeted as a positive by media analysts today who said the offering should remove an overhang in the share prices of both companies.

The move prompted CBS to calm any investor fears by reiterating its full year operating income guidance of between $1.72 billion and $1.925 billion for 2009.

Morgan Stanley analyst Ben Swinburne, said in a note Wednesday (Oct. 14), that the privately held National Amusements has $500 million in maturities due later this month. National Amusements surprised the market a year ago by announcing a share sale in both companies. This secondary offering should help National Amusements clear all its debts.

Media strategist, David Joyce at Miller Tabak & Co. noted today that the move was likely the result of National Amusement's inability to sell its movie theater chains in the U.S., U.K. and Brazil. "This National Amusements debt restructuring has been on Viacom and CBS shareholder radar screens since [last fall], but with Redstone vowing no ‘intention' to sell shares, and with no buyer for his movie theater chain, capitulation to sell, while still retaining a 75% stake was the only option." Joyce has a neutral rating on the shares of both companies.

Morgan Stanley has an overweight rating on CBS and an underweight on Viacom. "We are underweight on Viacom based on its lack of local and lower relative auto advertising exposure, two levers of growth in 2010, recent ratings pressure at MTVN and its lack of earnings production by its film studio Paramount," said Swinburne in a note today.

Mike Morris, who covers the entertainment sector at UBS, thinks the news will provide a buying opportunity for investors for what he regards as "the most attractively priced stocks in major media." Viacom trades at a 15% discount to UBS' media universe and a 35% discount to Scripps Networks and Discovery Communications. Morris also predicts CBS is well positioned to capture additional ad dollars given its strong ratings performance.

Stock prices in both companies fell in trading this morning. At 11 a.m., CBS was down 1.9% at $11.92 and Viacom was down 1% at $29.79. The Dow and S&P were up 1%.