Redstone Answers Back

With a hearing before the Delaware Court of Chancery slated for 2 p.m. today that could ultimately decide whether CBS’s controlling shareholder National Amusements Inc. remains in control, NAI and its chief Shari Redstone pushed back hard Wednesday, claiming that the broadcaster has been motivated by “unsourced media reports and conjecture” that have fueled fears that NAI would move to oust the CBS board of directors.

CBS filed suit with the Delaware court Monday seeking a temporary restraining order against NAI to prevent it from blocking a vote that would dilute the holding company’s 80% control of the broadcaster to 17%. CBS said that its board of directors planned to vote on the measure at a regularly scheduled meeting on May 17.

Also on Wednesday and minutes before the 2 p.m. hearing was to start, NAI said it had delivered written consents to amend CBS' bylaws to require a super-majority vote of the board and be subject to certain procedural requirements for certain board actions with respect to dividends and amendments to the broadcaster's bylaws.

"NAI believes the irresponsible action taken by CBS and its special committee put in motion a chain of events that poses significant risk to CBS," NAI said in a statement. "Due to the magnitude of this threat, NAI was compelled to take this measured step to protect its position while also mitigating further disruption to CBS."

The dispute centers on NAI’s plan to recombine CBS with its former corporate sister Viacom, which the broadcaster has resisted for years. NAI had originally proposed putting the two companies back together in 2016, but withdrew that deal later the same year. But the holding company, controlled by Shari Redstone and her father, former CBS and Viacom chairman Sumner Redstone, restarted those talks earlier this year. In February, both companies appointed separate committees of independent directors to evaluate a possible merger.

While the two were initially far apart on price, that issue seemed to be resolved in April, according to the NAI response. NAI also reportedly insisted that Viacom CEO Bob Bakish, a personal favorite of Shari Redstone, have a similar role in the new company. That met with heavy resistance from CBS chairman and CEO Les Moonves – who would have the same role in the new company – and who favored his current No. 2, CBS chief operating officer Joseph Ianniello.

Redstone apparently softened that stance in May, suggesting that Bakish receive a seat on the board of directors of the new company. But according to a report in the Wall Street Journal, even that was too much for CBS to bear, and claimed that a deal was unlikely.

According to several press reports, CBS investors feared that NAI would remove the entire CBS board of directors – which it is allowed to do under the company charter – to push through a Viacom deal. That, NAI said in its response to the court, was untrue.

“NAI does not have, and has never had, any intention of replacing the CBS Board or taking other action to force a merger,” NAI said in its response. “Plaintiffs’ supposed belief to the contrary is based on unsourced media reports and conjecture. Moreover, NAI offered to stipulate to a status quo order under which it would have agreed not to remove directors while this action is pending, as long as the CBS Board would postpone any meeting to approve the dilutive issuance. There is simply no cause for a TRO.”

Getting rid of Moonves wouldn’t be easy either. He serves at the discretion of the board of directors and even though NAI could oust the entire board, it would take time to replace them. And firing Moonves without cause would cost CBS dearly – it would trigger a golden parachute for the chairman and CEO estimated by some reports to be worth more than $150 million. Ianniello’s employment deal also includes a $70 million payout if he is no longer Moonves’ top lieutenant.

NAI claims that CBS’s moves are geared toward forcing NAI into making a “Hobson’s choice—of either accepting massive dilution of its voting power (thereby losing control of the company and suffering the economic detriment to its stake that entails), or acting as a stockholder to prevent such dilution and protect its voting power, knowing that doing so might trigger the departure of (and payment of massive parachute payments to) key management and directors of the company,” according to the filing. “The Board unquestionably understands that a controlling stockholder would not willingly give up control uncompensated, and it is imprudent that the Board would put the management of a $20 billion company at risk in such a fashion.”