Was Stock Trading by Viacom’s Chairman Paramount to Deal?
Sumner Redstone, the wily chairman of Viacom Inc., likes nothing better than to buy up his own stock--and to remind the world as he’s doing it.
But was he wrong to purchase nearly 750,000 Viacom shares between April 30 and Aug. 20--in the midst of the company’s on-again, off-again merger talks with Paramount Communications?
Viacom says Redstone did nothing improper. But some securities law experts say Redstone may have been operating in a “gray area” of the statutes that prohibit certain trading.
Wall Street, meanwhile, may be salivating at the thought of trouble for Redstone, because it could invite a competing bid for Paramount from any number of Viacom rivals--shades of ‘80s takeover mania.
Based on the trend in Viacom shares since Sunday’s merger announcement, some investors may wonder what the fuss is about. Viacom Class A shares have slumped from $66 on Friday to $61.50 on Tuesday. The Class B shares have eased from $59.375 to $55.375.
But Redstone isn’t a short-term investor. The question isn’t whether he was looking for a fast gain on his stock, but whether he helped assure Paramount’s acquiescence to a deal by contributing to the jump in Viacom stock this summer.
The merger terms, after all, involve a stock swap whose ultimate value to Paramount holders depends on the market price of Viacom shares. Thus, the higher Viacom’s stock, the greater the pressure on Paramount to agree to a deal, which it did.
Did Redstone help drive up Viacom stock with his summer purchases? Certainly, he was often a significant buyer, and there is always potential for his purchases to skew the stock because it is so thinly traded to begin with. On July 8, for example, he bought the majority of the 115,200 Class B shares that traded on the American Stock Exchange. The price jumped $2 to $48.
Overall, however, Redstone’s summer buying accounted for a minority share of trading activity, according to records filed with the SEC.
More important, Viacom insists that Redstone was merely following his usual regimen: reinvesting cash flow from his movie theater business, National Amusements, in his beloved Viacom stock. That has been his pattern since he bought Viacom in 1987. He frequently buys stock daily for long stretches. All in all, Redstone now owns 85% of the Class A shares and 69% of the Class B, a total of 92,112,628 shares.
His purchases of the two classes of stock were 1,047,300 shares in 1991 and 423,400 shares in 1992. So far this year, the total is 886,500 shares, most of which have been bought since April--when serious talks with Paramount apparently began.
But Viacom insists that the discussions with Paramount ran hot and cold until Aug. 20. In a statement Tuesday, the firm said Redstone refrained from buying in periods “while there was a likelihood of a Paramount transaction.”
Redstone’s buying, Viacom added, “was never intended to affect the price of Viacom’s stock. . . . Any suggestion, hint or innuendo that these stock purchases were at any time inappropriate, much less improper, is baseless and false.”
Redstone’s lieutenants went on the defensive in a big way Tuesday, responding to the sudden attention the summer stock transactions have received in the media--even though the trading activity was public record all along.
“Whenever he bought (this summer), there was no Paramount deal,” said one Viacom insider. “We thought it was over and dead.” Noting that Redstone is also a lawyer, the Viacom insider insisted that it’s ludicrous to suggest that Redstone would attempt to flagrantly violate securities laws. “There’s nothing that matters more to him than his integrity,” the insider said.
Some Wall Streeters admit there were substantial reasons for Viacom stock to rise during the summer, without Redstone’s help. The firm’s second-quarter earnings, released July 22 when the Class A stock was at $58, were surprisingly strong, thanks to MTV’s dramatic growth.
In addition, “multimedia fever” swept Wall Street all summer: Investors grew increasingly excited about the hardware and software companies expected to profit from the expansion of electronic communications options in the ‘90s.
Yet some securities law experts said Tuesday that to avoid any hint of impropriety, Redstone probably should have avoided influencing the stock as long as there was the remotest chance of a Paramount deal.
“It’s not all that gray an area of law,” said one Washington-based securities lawyer. “If you have material, non-public information or have a notion of how a transaction is to be structured, you have an obligation not to trade the stock.”
The issue, of course, is knowing whether Redstone had even a shred of an idea all along that a deal was possible. He says he didn’t. Proving otherwise could be all but impossible, experts note. “Traditionally, manipulation cases have been among the most difficult cases to prove under securities law,” the Washington lawyer said.
In a statement Tuesday, Redstone and Davis scoffed at the idea that Redstone’s trades could force a reconsideration of the deal. “Any malicious innuendo which may be intended to serve others’ agendas will have no effect whatsoever as we proceed with our planned merger,” they said.
But Wall Street, which would love to see a bidding war for Paramount, is mulling the possibilities. One interesting point is that Viacom’s normally thin trading now could work against the deal: Without Redstone in there buying--he hasn’t purchased shares since Aug. 20, and apparently plans to refrain until the merger is completed--profit takers could continue to hammer the stock.
The lower Viacom stock goes, the greater the chance that another bidder could offer more money for Paramount--and, in particular, more cash.
Viacom’s Rise
Viacom Inc. Chairman Sumner Redstone was activley buying the stock all summer, helping to push up the price--which also helped Viacom strike its merger deal with Paramount Communications.
Jan. 1: $44.00
Tuesday: $61.50
