Octogenarian media mogul Sumner Redstone has been plagued with debt problems.
He reassured investors in the two companies of which he's chairman, Viacom and CBS, that everything is under control.
Unfortunately, that's no longer the case. Redstone sold his Midway Games company in November 2008to investor Mark Thomas for $100,000 in a deal where Thomas agreed to take on $70 million in Midway debt. Now Restone, his National Amusements theater chain company, Midway chairman Shari Redstone and Thomas are being sued by Midway's creditors.
The creditors in Midway's bankruptcyproceeding call Thomas "a wholly unsuitable acquirer" in a complaint filed this week in Delaware Bankruptcy court. In April the judge told the creditors they could litigate against Redstone et al. Now the creditors are asking the judge to rule on whether Redstone and the others named in the complaint breached fiduciary duties to creditors in making the deal to sell Redstone's majority stake in the company. The creditors say that selling to such an "unsuitable" individual prevented the company from finding an appropriate partner to help restructure the business.
This complaint goes beyond Midway; Redstone's National Amusements holding company is implicated as well. The complaint alleges that National Amusements gave Midway $90 million in financing last year without evaluating the company, thus without knowing that the company was in weak financial shape. National Amusements (no surprise) defends itself and Redstone, saying in a statement that Redstone's conduct was "entirely proper."
Redstone's plate is overflowing these days: CBS is struggling with a precipitous decline in advertising, Viacom is working to build a new pay TV cable channel. The implication that Redstone makes investment decisions without doing his homework, is not a flattering one. The last thing Redstone needs is a lawsuit or more debt issues.
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