Midway Games chief Shari Redstone resigns

Shari Redstone, the daughter of media mogul Sumner Redstone, resigned Friday as chairwoman of beleaguered Midway Games Inc., saying she needed to focus more attention on negotiations with bankers to restructure the family business’ massive $1.6-billion debt.

The move underscores the pressure the powerful media family is under to make an $800-million payment by Dec. 19. Shari Redstone has been leading discussions with lenders on behalf of the family holding company, National Amusements Inc.

At stake is the potential breakup of National Amusements, which holds Sumner Redstone’s controlling shares of Viacom Inc., CBS Corp. and Midway Games, along with slot machine maker WMS Industries Inc. and a 1,500-screen theater circuit run by Shari Redstone. Sumner Redstone owns 80% of National Amusements while his 54-year-old daughter owns the remainder.

A month ago, National Amusements was forced to sell $233 million in shares of Viacom and CBS when their falling stock prices violated debt covenants.

Sumner Redstone has been adamant that he does not intend to sell any more Viacom or CBS stock. He hinted this week that the profitable theater circuit might be on the block or that the valuable real estate that the theaters sit on might be used to secure the debt.

Unloading Chicago-based Midway Games could be another option. Midway, a laggard in the game business, is the least valuable of National’s assets, worth only $52.3 million.

Once fetching more than $26 a share, Midway’s value has cratered since late 2005, and its shares closed Friday at 56 cents. “Midway’s stock isn’t worth much, and I’m not sure who would want to buy it,” said Michael Pachter, a game industry analyst with Wedbush Morgan Securities.

That makes the approximately $700 million that Sumner Redstone has spent on Midway shares one of the 85-year-old’s most costly missteps. In addition, National Amusements has extended more than $100 million in loans to help keep Midway afloat.

Redstone was banking on Midway, the creator of the game “Mortal Kombat,” to become another juggernaut in his media empire that boasts the CBS network; cable channels MTV, VH1, Comedy Central and Nickelodeon; and Paramount Pictures film studio.

“Midway was a top 10 company when Redstone started buying it,” Pachter said. “I think he looked at Midway and said, ‘I could turn this company into something big.’ But he picked the wrong horse.” Sumner Redstone’s fixation with Midway and his purchases of its stock contributed to a rift with his daughter. Shari Redstone felt that National Amusements was pouring good money after bad and artificially inflating Midway’s stock price.

In fact, as soon as Sumner Redstone stopped buying Midway stock, the shares nose-dived and never recovered.

Shari Redstone joined the Midway board four years ago and was named chairwoman in December. She declined to comment beyond a statement that said the reason for her resignation was to focus on the bank negotiations.

Board member Peter Brown, who is chief executive of the theater circuit AMC Entertainment Inc., was named chairman to replace Shari Redstone. She had recruited Brown to the board in 2005.

Although their theater chains are competitors, Redstone’s and Brown’s companies are partners in the online service MovieTickets.com.

Adding to Sumner Redstone’s headaches was a Massachusetts high court’s decision on Friday to revive part of a lawsuit brought against the media mogul by his nephew, Michael Redstone, who claimed that he was cheated out of shares of National Amusements. The court reaffirmed a lower court ruling that it was too late to reopen a separate, and potentially more lucrative, claim that Michael Redstone had brought regarding a 1984 redemption of National Amusements stock.

Michael Redstone claimed that Sumner Redstone had secretly engineered a purchase of shares of the family trust at lowball prices, a move that shortchanged the other members of the family.

A National Amusements spokeswoman declined to comment.

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