Sumner Redstone: A cautionary note

Viacom is the corporate parent of CBS; Sumner Redstone is Viacom’s chairman and CEO. Several of the bloggers whom we admire have given prominence to the SEC filing reporting the September 14 exercise of an option to sell hundreds of thousands of shares of Viacom stock by Redstone. Reader Walt Tester urges the following cautionary note:

Hopefully you guys won’t fall for this b/s story. Perhaps you are the sole voice of the blogosphere that can try to stop this b/s story that Sumner Redstone, CEO of Viacom sold 300,000 plus shares of stock with a link to an SEC filing to prove it.
What they are seeing is a paper transaction of a stock option being exercised, which is the paper sale of some shares at $35 to cover the lower cost ($15) of the option shares. There was no actual sale of shares, no cash gain, and Redstone will not have to pay taxes as a result of exercising his stock option, which is a common practice in corporate America. The reason for the SEC filing is that he is on the Board of Directors of Viacom…
The entire blogosphere is going to have egg on their faces once the MSM gets hold of this, and they will, to say nothing of what CBS and 60 Minutes will do to us. Maybe your voice and a post can stop this suicidal mania on the blogosphere regarding a stock option exercise…

Enough said.
UPDATE: Reader Tom DeWard adds:

I’m not too sure I agree with your blog on the stock options exercised and sold by the Viacom executive.
This is from Yahoo finance insider transactions.

14-Sep-04 REDSTONE, SUMNER M. Chairman 341,500 Sale at $35 per share. $11,952,500 14-Sep-04 REDSTONE, SUMNER M. Chairman 341,500 Option Exercise at $15.25 per share. $5,207,875

I agree this is a common practice. Please do your own research. This is basically a simultaneous exercise of options and a sale at the current market price. I don’t agree that there is no taxable gain. Furthermore, the sale is not mandatory. He could have exercised his options and held the shares assuming he had adequate cash or borrowing power to purchase the stock for $5,207,875.

I think the bottom line here is that the implication of wrongdoing is misguided.
UPDATE 2: Many readers have sent emails with additional analysis of the transactions in issue. We are not experts and the information is in any event inconclusive. Our sole purpose is to raise a cautionary note suggesting that more information and analysis is necessary before conclusions can fairly be drawn.

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