Redstone Overhang

When a company’s share-price remains buoyant despite a significant sell-off by senior management.

On October 14, National Amusements, Sumner Redstone’s privately owned company, announced it would sell nearly $1 billion worth of shares in Viacom and CBS. Counterintuitively, the price of both shares rose.

“Usually when the chairman of a company dumps nearly $1 billion in stock, share prices tumble off a cliff,” Meg James wrote in The Los Angeles Times’s Company Town blog:

But apparently not when it’s Sumner Redstone.

Wall Street has dubbed the phenomenon the “Redstone Overhang.”

A week after National Amusements announced the sale, Viacom B shares closed at $29.51, compared with $28.70 the day before the announcement. CBS B shares increased from $12.15 to $13.82. According to James:

For the past year, investors have been cautious about Viacom Inc. and CBS Corp. stock after learning that Redstone’s privately held company, National Amusements Inc., was in violation of bank covenants and struggling to pay its $1.6-billion debt. That caused a wave of jitters because National Amusements is the controlling shareholder of Viacom and CBS. Investors were worried that if National had been forced into bankruptcy, Viacom and CBS might suffer collateral damage.

After the sale announcement, James said, “Investors cheered, and the stock of CBS and Viacom began to climb.”