Big buyer gives Redstone a blockbuster of a gift

Viacom chairman Sumner Redstone is a lucky man, judging by astonishing trading in Viacom stock in recent weeks.

At a time when Viacom’s stock price has been of great importance for the company, Wall Street traders say a single buyer has been in the market snapping up Viacom stock over the past few weeks, spending possibly more than $1 billion and keeping the stock price strong.

The buying not only beat back attempts by speculative investors to push Viacom’s stock price down through August, but late last week forced some of these professionals to follow suit and start buying Viacom stock. Between Sept. 6 and Sept. 8,10.3 million shares of Viacom’s B stock changed hands and the price of the stock jumped to $52.50 from $48.75. That volume is 3.4% of the outstanding stock and several times the usual trading volume.

The result of the price rise is that Viacom won’t have to issue anywhere near as much stock to former shareholders in Blockbuster at the end of this month as it would have otherwise. Viacom has been saved hundreds of millions of dollars in stock issues and existing shareholders have not been diluted.

The identity of the buyer is not known, although a rumor circulating late Sept. 8 named a well-known money management firm. All that is known is that Wall Street firm Lehman Bros, was acting for the buyer, although California firm Montgomery Securities had been acting for the buyer earlier.

The buying began in August, when professional investors began selling Viacom stock to try and force the price down. These investors are believed to have held close to 40 million shares, much of which was sold last month and absorbed by one buyer.

Last week a single buyer was also in the market, although traders say it was a different person.

The motivation for the buying is unclear, and there were plenty of nefarious rumors circulating. The most charitable suggestions were that the money manager believed Viacom stock was about to take off, or his fund could have been switching out of another media conglomerate into Viacom.

Whatever the reason, Viacom shareholders have benefited. Viacom had the liability to issue stock to former Blockbuster shareholders as a result of last year’s takeover of Blockbuster, when Blockbuster shareholders were given Viacom stock in exchange for their shares in the video rental giant. To protect them against a fall in Viacom’s price, they also received securities guaranteeing them more stock if the price traded below $52 within three months leading up to Sept. 29.

Viacom has been trading around $45-$46 through the year and traded between $47.25 and $50.75 in August. Early last week analysts estimated it would have to issue 9.4 million shares to Blockbuster shares. By Sept. 8, with Viacom’s price above $52, one analyst revised that down to 4.4 million shares. That could conceivably fall to zero if it trades above $55 for the next few weeks.

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