With just hours to go before a hearing in a Delaware court that could determine the fate of any CBS and Viacom merger and likely the future of CBS Corp CEO Les Moonves, Shari Redstone and her National Amusements hit back hard this morning against the media company’s move to dilute them out of the picture.
“Plaintiffs have forced CBS’s controlling stockholder into a position of having to make 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,” reads a brief (read it here) in opposition to CBS’ bold motion of May 14 for temporary restraining order against controlling stockholder National Amusements, which was founded by Sumner Redstone.
In case you missed it, that last part seems aimed at CBS CEO Moonves, who could find himself much like now ex-Viacom boss Philippe Dauman was in 2016 when that longtime CEO lost a boardroom war with the younger Redstone. Of course, Moonves doesn’t seem to see the same fate for himself.
“Apparently over the weekend of May 11-13, 2018, the CBS special committee determined that, in their view, a combination of CBS and Viacom was not in the best interests of CBS and its stockholders,” Wednesday’s early-morning paperwork from NAI says, brandishing charged terms like “ambush” in its headings. “The special committee, however, chose not to convey this to Ms. Redstone or anyone at NAI or Viacom,” it goes on to state.
The response comes in a jammed week that sees not only this legal battle in front of Chancellor Andre Bouchard this afternoon, but CBS’ upfronts presentation later today, a full board meeting tomorrow on the shares matter, and a long-scheduled shareholders meeting Friday.
With all of that as a backdrop, CBS’ breach of fiduciary duty broadside this week seeks to effectively constrain Redstone from interfering with the board’s deliberation over a possible re-merger with its corporate sibling. Through the family’s National Amusements, Redstone essentially controls both companies – control her lawyers say she will handle with care and won’t give up without a fight.
“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,” Redstone’s New York-based Clearly Gottlieb Steen & Hamilton LLP and local lawyers say.
“NAI does not have, and has never had, any intention of replacing the CBS Board or taking other action to force a merge,” continues the 30-page opposition. “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.”
In many ways, the heart of this is what role Viacom CEO Bob Bakish might have in a combined company — a role Redstone envisions as much much larger than her once-ally Moonves does. If things were not to go CBS’ way at today hearing and the TRO is rejected, it is possible that dominos could start falling in a fashion that triggers Moonves’ departure and a $150 million golden parachute.
CBS and its independent board members claim Redstone has improperly inserted herself into the CBS-Viacom talks and has expressed a willingness to replace CBS directors to force a deal. Independent members of the board told the court that it needs to take steps to protect the interests of the company’s shareholders.
Specifically, the board is considering a plan that would replace shares of non-voting stock in CBS with voting shares, a move that would reduce Redstone’s control. The Redstone family controls 80% of the voting shares in the network through the National Amusements holding company, even though their economic stake is just 10%.
“Plaintiffs seek a supposedly “temporary” remedy that is extraordinary both in scope and finality in response to unsupported allegations about NAI’s intentions with respect to a possible merger of CBS with Viacom Inc.,” today’s opposition filing by NAI states.
“Specifically, Plaintiffs suggest that NAI intends to force such a merger by removing and replacing the CBS independent directors,” the filing adds, with reference to a board meeting scheduled for Thursday that aims to water down NAI’s voting power and thereby halt any alleged corporate chess piece moves. “There is no truth to that.”
“There is simply no cause for a TRO,” asserts attorneys for the Redstones and NAI as the clock ticks down to the hearing scheduled for 2 PM ET today. That hearing comes just two hours before CBS kicks off its annual upfronts presentation in New York City. The event could take on a very different tone from past years if CBS does not get that TRO it so desires.
CBS is represented by a legion of lawyers from New York firms Wachtell, Lipon, Rosen & Katz plus Weil, Gotshal & Manges LLP and Ross Aronstam & Moritz LLP.