The Buzzards Are Circling Around Sumner Redstone

Sumner Redstone is having trouble, and Hollywood is having a party.

10.29.08 6:48 AM ET

Just a couple of Fridays ago, Sumner Redstone dined out with Sherry Lansing, the relentless charmer who was his chief at Paramount Pictures for years. The next night, his dinner companion was another of his former executives, Jon Dolgen, ex-chairman of the Viacom Entertainment Group.

On both occasions, nothing seemed out of the ordinary. Redstone’s wife, Paula, was by his side, and there was chat about the election, among other topics. Never a hint that the troubled marriage had ruptured. No discussion about roiling problems at National Amusements, the privately held company where Redstone keeps his stock in CBS and Viacom, home of MTV, Nickelodeon, and Paramount Pictures, among other properties. No suggestion that Redstone’s life was in turmoil, personally and professionally.

The New York Post has been hammering the question of Redstone’s liquidity. ‘Rupert’s going to run a story on him every day.’

Credit Redstone with sangfroid. Just days earlier, National Amusements had revealed that Redstone had been forced to sell off $233 million worth of stock in CBS and Viacom at low, low prices after he fell out of compliance with the terms of a loan calculated at $1.6 billion. That crisis was far from resolved. And days earlier, Redstone had filed for divorce.

In the media world, Redstone’s business problems—and even his marriage—were already the topic of considerable discussion. Former associates began to wonder whether Redstone’s empire was about to crumble. Some hoped it was. Redstone has been so irascible, so litigious even with his own children, that it’s hard to figure who his allies might be.

“The only people who could possibly be rooting for him are the ones who work for him,” says one of the many executives who have left the Redstone fold. “And they’re probably thinking, ‘I’ve lost everything in terms of equity. How bad could it be working for somebody else?’”

Redstone’s peers in the mogul world aren’t carrying a brief for him, either. Redstone has long set himself up as a rival to Rupert Murdoch, and that same former Viacom executive notes that Murdoch’s New York Post has been hammering away on the question of Redstone’s liquidity. “Rupert’s going to run a story on him every day,” he says.

Many in the cadre of Redstone’s former Viacom associates see him as the victim of his own rapaciousness. He may have made billions as he pieced together a media giant, but now, they say, he is paying the price for gobbling up too many things, indiscriminately, including CBS, Paramount, and Midway Games. “He’s got a sort of addictive personality when it comes to buying stock,” says one former top-level Viacom executive.

Now National Amusements’ troubles could have a big impact on the publicly held CBS and Viacom. A former Redstone associate says shareholders in those companies had no way to anticipate what he calls this “interesting turn of events.”

“Everyone always thought his control of these two companies was unassailable,” he says. No one knew National Amusements had “all this stuff and mischief going on.”

So far, National Amusements has been stingy with information about its difficulties. A former Viacom executive says Redstone was long in the habit of spending freely from National Amusement coffers—to the annoyance of his daughter Shari. She was irked, for example, when Redstone in 2007 pledged $105 million to the treatment of burns and prostate cancer, both of which have afflicted him. “He took credit for [the donations] personally,” says a former colleague. “You don’t see National Amusements’ name anywhere.”

No one has pressed harder for transparency than Rich Greenfield, a securities analyst with Pali Research. “What continues to amaze us is why [National Amusements] does not go on the record with its full financial position, given its importance to [Viacom and CBS] shareholders,” he wrote on his blog last Friday. (National Amusements declined to comment for this article.)

Last week, there was so much speculation that Redstone might be forced to sell CBS or Viacom that he felt compelled to deny it in a Wall Street Journal interview, adding, “We have no intention to sell any more stock.”

But not everyone was convinced. One longtime Viacom insider believes Redstone may be looking into the sale of CBS—an option that he would prefer to parting with Viacom. But with TV ad revenue shriveling, the network would be the tougher sell.

Last week, Redstone said he was encouraged by the status of negotiations with banks to restructure his debt. And many observers think he can pull it off.

If detractors are right when they blame Redstone’s rapaciousness for getting him into this situation, it seems the same sort of analysis could be applied to his marital issues. There had been murmurs that Redstone had been seeing two—or was it three?—lady friends just before his five-year Cinderella marriage to the humble schoolteacher succumbed. In fact, he appears to have had enough long-term polygamous entanglements to prepare him for membership in the Fundamentalist Church of the Latter-day Saints.

Associates recall a longtime liaison with a divorcée from Massachusetts, as well as one Manuela from Latin America, who may still be in the picture. “She’s a nightmare,” says one of the former Redstone associates. “She’d go to Nickelodeon events and demand things—front-row seats for a party of 13 or 14—and drive them nuts.” The notion that Redstone is still so very…active stirs a mixture of feelings in those looking on. “It’s a little pathetic, but on the other hand, it’s like, ‘Wow. Can he really do that?’” says the producer.

Maybe he can do it all. According to one friend, Redstone wasn’t faking his cool demeanor at those recent dinners. “Controversy does not bother him,” he says. “He loves adversity.”