I am Hollywood

[Chapter 1148: Shedding a Tail to Survive]

The television turned on, revealing that the press conference held by Viacom's headquarters in New York had already concluded.

Elisabeth switched through several channels before finally finding footage on CNN of Viacom co-president Tom Freston pushing past a throng of frenzied reporters, hurrying away from the conference. Despite the chaos, Eric quickly grasped the situation thanks to the CNN anchor's subsequent commentary.

Just recently, Tom Freston announced that to further optimize the company's asset structure and mitigate operating risks, Viacom planned to spin off its Blockbuster chain, which failed to keep pace with the company's overall development, into a separate operating holding company. After the split, Blockbuster's stock would be listed for separate trading, no longer intersecting with Viacom's business interests.

Sitting sideways on the edge of the bed, Elisabeth listened with keen interest to CNN's two anchors debating the topic, before turning to Eric and saying, "Let's see how you handle this."

In theory, Viacom peeling off Blockbuster seemed like a smart move, as it suggested that the Firefly Group's attempts to block Blockbuster would no longer impact the entire Viacom entity. But in reality, this appeared to be wishful thinking on some people's parts.

Eric wrapped an arm around Elisabeth's waist and replied, "Shedding a tail to survive, huh? Smart decision. However, it seems Viacom has miscalculated a bit. They are not the lizards being hunted, and the Firefly Group is not that snake pursuing them from behind. So, this situation has nothing to do with nature's survival instincts."

Leaning against Eric's shoulder, Elisabeth fiddled with the remote control and said, "But it's effective! Viacom is essentially a publicly-held company, with hardly any major shareholders aside from the Redstone family -- most others own less than 5%. Many investors would only judge based on news from the public market; perhaps Viacom's stock might rebound next week."

"It's not that simple," Eric argued. "While Blockbuster has struggled, its biggest advantage as a large retail chain was providing significant cash flow to its parent company, Viacom. That was also Redstone's main reason for acquiring Blockbuster in the first place. However, this means Viacom must untangle the complex financial relationships between Blockbuster and its other businesses before they can pull off a successful split. Just that alone could keep Viacom busy for a month or two."

When Redstone first initiated the acquisition of Paramount, he lacked sufficient funds, so he pursued a roundabout strategy. He first absorbed Blockbuster and then raised significant capital through Blockbuster's cash flow and asset mortgaging to finally complete the acquisition of Paramount.

Now, to split Blockbuster, Viacom had to repay the cash siphoned from Blockbuster over the years and sort out the accounts. This was relatively manageable, as even after the split, the shareholders for both Viacom and Blockbuster would essentially remain the same, especially since control had always stayed in Redstone's hands.

However, once the split was complete, Viacom would no longer enjoy the benefits of Blockbuster's cash flow.

A more troublesome issue was the debt situation. Redstone had mortgaged Blockbuster's assets to acquire Paramount, and in the years since, Viacom had been rapidly expanding without having sufficient funds to repay the lingering debts.

According to the financial data Eric had seen recently, Blockbuster currently bore debts totaling a staggering $2.6 billion. Compared to Blockbuster's market value of over $8 billion a few years ago, this amount was not exaggerated at all. Even now, if distributed across the entire Viacom Group, the $2.6 billion in debt seemed trivial.

But in the event of a split, with Blockbuster's valuation having plummeted to less than $3 billion, that $2.6 billion debt could effectively push the company's debt ratio to nearly 100%.

This raised a critical question: how would they resolve that $2.6 billion in debt?

If left entirely with Blockbuster, Viacom would undoubtedly consent, but the creditors would not. Given Blockbuster's current operational status, who knew whether the chain still possessed the capacity to repay its loans? If it further deteriorated and went bankrupt, who would cover the payments?

On the other hand, if Viacom absorbed it all, Redstone and the other shareholders would also disagree.

The only solution would be to distribute the burden, but determining how to do so would inevitably lead to a stalemate.

...

As Eric and Elisabeth discussed this matter, the phone on the bedside table rang. Noticing it was a call from Katzenberg, Eric answered casually.

After a brief conversation, Eric hung up. As Elisabeth leaned over, eavesdropping, she immediately asked, "Carl Icahn?"

Eric nodded. "He wanted to take me to lunch today. Want to join?"

Elisabeth thought for a moment and asked, "Does he plan to make a move on Viacom?"

"It seems obvious."

Among Wall Street's famous corporate raiders, Carl Icahn had gained far more notoriety than Ron Perlman. Perlman's malicious acquisitions were often limited to companies like Revlon and Marvel, which were worth less than $1 billion. In contrast, Icahn often targeted global giants like Universal and Motorola -- the difference was clear.

After the dawn of the new century, the trend of corporate mergers had cooled significantly, and many once-notable corporate raiders, including Perlman, fell into obscurity. However, Icahn remained very active; Eric vaguely recalled that Icahn later initiated an acquisition of Lionsgate.

...

Not long after Viacom announced the spinoff of Blockbuster, Yahoo's portal quickly published a headline article analyzing the series of tough challenges Viacom would face as a result. It pointedly noted that this move was merely a distraction for investors, as the split plan could not possibly be implemented in the near term.

Media outlets eager for drama followed suit, entering the fray with heated discussions that generally reflected pessimism about Viacom's decision to split.

Those privy to the details understood that the focus was firmly on Viacom as a whole, and the Firefly Group would not back down because of Redstone's desperate measures.

Moreover, Blockbuster's creditors promptly released statements indicating they would closely monitor Viacom's spinoff plan. Some cautious creditors went so far as to issue warnings, demanding that Viacom take creditors' interests into consideration and refrain from making foolish decisions.

...

New York.

At Viacom's headquarters in Rockefeller Center, Manhattan.

On the East Coast, it was already afternoon.

Even though it was Saturday, many employees remained at the headquarters in a frenzied state of busyness.

Since last Monday, amidst the Firefly Group's sudden attacks, the atmosphere at Viacom had turned tumultuous.

While they couldn't see all the intricate details, most employees working in the media industry had a pretty good idea of why Viacom found itself in such a predicament.

Memory of Eric Williams' unforgiving stance during the last gossipy online incident lingered in their minds; followed by the entire internet media sphere falling silent, the "Hollywood Gossip" website being completely shut down, and a crucial partner at Sequoia Capital being forced out -- all these events left most Viacom employees worried about the company's future.

Even though they knew Viacom would surely not collapse like "Hollywood Gossip," observing the chaos within the group had some employees considering switching jobs. After all, if Eric Williams refused to relent, it wouldn't end nicely for Viacom, even if the company didn't come crashing down.

In fact, Blockbuster was already reeling from this incident. With summer approaching -- the peak season for VHS and DVD sales -- this leading home entertainment video rental chain found itself suddenly stripped of content support from more than half of Hollywood's major motion picture companies.

A slew of blockbuster films that should have been released on VHS and DVD in the near future -- like The Day After Tomorrow, Charlie's Angels 3, The Ring, Mission: Impossible 3, and Ted -- would not appear on Blockbuster's shelves.

It was easy to envision how bleak Blockbuster's operational state would be in the coming months.

Moreover, while the Firefly Group abandoned Blockbuster -- their largest retail chain -- they wouldn't be losing too much.

Inevitably, companies like Movie Gallery and Hollywood Video, as well as major retail stores such as Walmart, could readily serve as ample sales channels for the Firefly Group's films. Fans would hardly be troubled by Blockbuster's out-of-stock situation.

Even those accustomed to renting and purchasing DVDs at Blockbuster would only need to shift their patronage to other stores to find what they wanted. Conversely, losing that loyal customer base would spell disaster for Blockbuster.

...

Internally at Viacom, following his public appearance on Monday, the toughened Redstone issued a firm prohibition against any company executives reaching out to the Firefly Group, establishing a stance of total resistance.

However, as stock prices continued slumping throughout the week and subsequent media backlash post-news conference veered toward skepticism, Viacom's upper echelon grew increasingly despondent. A jolt of concern coursed through a few core executives when news arrived that Eric Williams was meeting with Wall Street predator Carl Icahn in Los Angeles.

After some deliberation, Tom Freston, the co-president of Viacom who had overseen the press conference that morning, knocked on Redstone's office door.

Despite it being the weekend, Redstone was still hard at work.

Once allowed in, Freston entered to find Redstone engaged in a conversation with the group's legal advisor, so he waited patiently for the latter to leave, before approaching Redstone.

"Tom, take a seat," Redstone gestured to the couch across from his desk. "I've heard the news."

Unsure if Redstone was referring to Eric Williams' meeting with Carl Icahn, Freston sat down. "Sumner, Williams and Icahn getting together could mean a hostile takeover against Viacom is in the works."

"I just spoke with Fisher," Redstone's expression was equally grave. "If Williams and Icahn genuinely team up, we could file a complaint with the SEC, urging them to investigate the Firefly Group's manipulative actions against Viacom's stock price."

"Williams won't provide us with evidence. His lunch with Icahn doesn't mean anything," Freston shook his head and hesitated, before continuing, "Sumner, we can't continue down this path. The company should strive to reconcile with Williams soon."

Redstone grew stern. "You mean to suggest I apologize to that little bastard?"

"You were completely unaware of the previous incident, Sumner," Freston replied. "If you agree, we'll handle it from here."

"I refuse to use 'unawareness' as a poor excuse to placate others. That would make me appear like a hypocritical joke of a politician."

"I understand, but we still must confront the present situation," Freston insisted. "Since Icahn's been in contact with Williams, he's undoubtedly in the game now. If he secures over 5% of Viacom's stock, he can call for a special shareholders' meeting. Sumner, you must realize this could fundamentally alter the company's equity structure, and we currently lack any strong resistance. Even if the SEC eventually investigates Icahn and Williams, by that point, it might no longer concern us. Given Icahn's reputation, if he gets a hold on Viacom, he'll absolutely tear apart everything you've worked for."

At last, Redstone fell silent.

After a moment, he asked, "Do you think that bastard would be willing to reconcile with us? Look at how he dealt with that Hollywood Gossip website -- he had all their employees blacklisted without mercy."

Freston shared this worry but quickly countered, "But if we do nothing, the situation will only worsen."

Again, Redstone lapsed into silence. Typically a combative figure, he relished a fight against the Firefly Group, even if it resulted in mutual destruction.

But Eric's contact with Icahn genuinely began to unsettle Redstone.

Having long feared losing control over Viacom, he was now 76 years old, and if anyone even attempted to wrest power from him -- be it his children or others -- Redstone would not hesitate to kick them aside.

This fear had created prolonged tension between him and all his children in recent years.

After long hesitation, Redstone finally stated, "Then make a call to Los Angeles and have Sherry initiate contact there."

Freston replied, "I believe it's better for me to fly out personally; that would show more sincerity."

Redstone furrowed his brow but ultimately nodded in agreement.

...

At a restaurant on Venice Beach, Elisabeth eagerly spoke up after Eric and Carl Icahn had concluded their lunch and climbed into the car, "MTV and Showtime -- Carl Icahn is quite generous, and he clearly knows your intentions."

During their lunch, Icahn had proposed that as long as Eric continued to apply pressure on Viacom to drive down its stock prices, once he secured control over Viacom, he would consider selling the two major cable channels under Viacom -- MTV and Showtime -- to the Firefly Group.

Clearly, the other party had astutely noticed Eric's focus on expanding Firefly Group's cable television businesses in recent years, especially given the rapid growth in the cable industry, making his proposal quite enticing.

Firefly Group's four major film companies had already captured over 70% of Hollywood's box office share last year, with profit margins that far surpassed those of the other major three film studios. Because of this, Eric didn't feel a pressing need to continue absorbing Paramount. As long as he could manage those four film companies effectively and grab more box office profits while continuously squeezing the survival space of other companies, Firefly Group was destined to become Hollywood's dominant power, which was far superior to swallowing the entirety of Hollywood indiscriminately.

Thus, concerning Viacom, what excited Eric most were precisely those cable channel assets like MTV and Showtime.

With a smile on his face, Eric replied, "If he doesn't hand over what I want most, how could I help him generate momentum in the Firefly Group? There aren't many fools on Wall Street, especially not Carl Icahn."

Elisabeth cuddled closer, wrapping her arm around Eric's, and asked, "So, what's your plan? You do realize that if we truly align with Carl Icahn to target Viacom, we'll undoubtedly face lawsuits down the line?"

*****

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