Having failed to get a temporary restraining order last week, CBS went back to court today seeking to invalidate a big change in the company’s bylaws that would cement the power of controlling shareholder, Shari Redstone and National Amusements – power that could see a merger with Viacom
“These actions and threats by Defendants are disloyal, inequitable, and not entirely fair,” stated the injunction seeking amended complaint filed Wednesday in Delaware by the Les Moonves-run media company (read it here). “Relief from such actions and threats is necessary to protect CBS and its public stockholders from exploitation by its controlling stockholder.”
The network’s 67-page filing argues that Shari Redstone has departed from her father Sumner Redstone’s repeated promises not to interfere with CBS’s business operations, despite his voting control over the company — a hands-off approach that it argues led to more than a decade of success. Court documents portray Shari Redstone as repeatedly meddling in CBS’s affairs since she gained control of the family’s holding company, National Amusements, including pushing for a unwanted merger with corporate sibling Viacom to undermining the management team to waiving off a potential buyer expressing interest in acquiring CBS, a deal that could well have been lucrative for all shareholders.
CBS argues that Redstone’s interference has created market uncertainty that resulted in the loss of billions of dollars in market valuation.
“Defendants violate, and threaten to continue to violate, their fiduciary duties by abusing their control to undermine the independent corporate governance of CBS, which they have repeatedly and publicly supported in the past, at the expense of the Company and its public stockholders,” CBS’ attorneys add of Redstone and NAI. “Defendants’ use of written consents to attempt to amend CBS’s Bylaws to interfere with the Board’s consideration of the Stock Dividend was a self-interested action that was not in the best interests of CBS and its majority economic stockholders,” the court filing goes on to say, with remarkable allegations that Redstone was warding off other possible CBS bidders.
“Ms. Redstone told the CEO of a potential acquirer of CBS that he should not make such an offer, thereby depriving CBS stockholders of a potentially value-enhancing opportunity that the Board or the Special Committee should have been free to evaluate, even if to use as negotiating leverage in connection with discussions concerning Viacom.”
Underneath the barbed terms and big claims, CBS asked the court to invalidate the steps Redstone’s NAI took on May 16 to neutralize the actions of a majority of CBS’s directors, who voted to reduce the mogul’s hold over the company by distributing voting stock to all shareholders — including those who currently hold non-voting Class B stock. National Amusements has maintained it was within its rights to change the corporate bylaws.
“National Amusements exercised its legal right to amend CBS’ bylaws and this change was effective immediately,” the company said in a statement. “We are confident the court will uphold NAI’s action.”
A move that is also aimed to achieve another previous goal for CBS in halting the long march to a rejoining with Viacom, which the media company was successfully split from over a decade ago. “Threats by Defendants to stack the Board or replace Board members with new directors loyal to them would likewise be an abuse of control that attempts to reap private benefits
for themselves at the expense of CBS and its majority economic stockholders,” today’s filing asserts, as one of many differences from the initial paperwork of last week – which now almost seems to be from another era.
“Defendants would suffer no injury from being subject to an injunction barring them from taking further self-interested action to exploit their voting control for their benefit and to the detriment of CBS and its majority economic stockholders,” CBS tell Delaware Court of Chancery this morning, a statement reps for Redstone has disagreed with. “Any actions taken in breach of fiduciary duty are void.”
Going by the letter of the law, the House of Moonves argues its board has every right to issue a dividend and that Redstone’s last-minute maneuver is invalid, because Securities and Exchange regulations mandate a 20-day advance notice to shareholders such bylaw changes. National Amusements has maintained that it took immediate effect. If upheld by the courts, the CBS board’s vote would strike a death blow to the dual-class stock ownership of the media company. It would diminish Redstone’s voting interest from 80% to 20%.
The filing escalates a legal battle that started on May 14, when CBS sought a temporary restraining order against Redstone, seeking to bar her or NAI from interfering with the planned board vote. The independent directors of CBS argued such extraordinary measures were necessary because of concerns that Redstone would take actions — including even ousting CEO Leslie Moonves, or replacing board members — to force a merger with corporate sibling Viacom.
National Amusements has repeatedly said that’s not the case, though it clearly would not stand for any moves by CBS to diminish its control over the network.
Before the Delaware Chancery court reached a decision, ultimately rejecting CBS’s request for TRO, National Amusements changed the network’s corporate bylaws to require a supermajority of directors to support a dividend payment, a threshold the subsequent 11-3 vote failed to meet.
Today’s court filing provides a glimpse into the CBS board room, where Moonves talked about the damaging effects of Redstone’s interference, and said he did not think he could successfully lead the company under these circumstances. Redstone, who attended the meeting at Black Rock in person, said privately what her representatives have said publicly: that she has no intention to force a deal with Viacom, or replace most of CBS’s directors.
Independent board member Martha L. Minow, who has taught at Harvard Law School for nearly four decades and served as its dean, said that no one was “happy” about the situation, but that the Special Committee felt the stock dividend was necessary to protect the company’s shareholders and the company’s “A+” management team.
Today’s action follows the immediate fallout of the board vote when CBS hitting the pause button on its annual shareholder meeting. Following the week of legal and corporate battles plus the upfronts in NYC, that gathering was set to take place on May 18 in the Big Apple. No word yet when the shareholder meeting will actually occur.
CBS and the individual plaintiffs are represented in this matter by a Praetorian Guard of lawyers from Delaware’s Ross Aronstam & Moritz LLP and NYC’s Wachtell, Lipton, Rosen & Katz plus Weil, Gotshal & Manges LLP.