In what look and feels like big blow to Les Moonves and CBS stock, a Delaware judge has just denied the company’s desire for a temporary restraining order to stop Shari Redstone and National Amusements from interfering in a proposed dilution of their control. From a big picture perspective, CBS’ move is intended to halt Redstone’s long march to ensuring a merger with Viacom
“The motion is denied, and the order that was entered at the conclusion of yesterday’s hearing to protect the court’s jurisdiction pending this ruling is hereby rescinded,” wrote Chancellor Andre Bouchard this morning. The decision comes just hours before a CBS board meeting in New York was set to start to consider trimming the Redstone controlled NAI’s nearly 80% of the company’s voting shares down to 17%.
Needless to say, Team Redstone is in a happy place right now, with their long-held ambition to merge CBS and Viacom now looking to be resurrected from the corporate crypt.
“We are pleased by the court’s decision to deny CBS and its special committee’s unprecedented motion to try to deprive a shareholder of its fundamental voting rights,” said a NAI spokesperson told Deadline, emphasizing that the company promises not jam through a merger if neither side wants it.
“The court’s ruling today represents a vindication of National Amusements’ right to protect its interests. As we intend to demonstrate as the case proceeds, the actions of CBS and its special committee amount to a grievous breach of fiduciary duties and show no regard for the significant risk posed to CBS and its investors.”
Having come up short in this big play for independence, a likely shaken Moonves and CBS insist they are looking at the long game, legally and otherwise.
“The judge today found that the allegations in our lawsuit ‘are sufficient to state a colorable claim for breach of fiduciary duty against Ms. Redstone and NAI as CBS’s controlling stockholder,'” the still Moonves-run corporation declared Thursday. “We could not agree more,” CBS added. “While we are disappointed that the judge did not grant a TRO, the ruling clearly recognizes that we may bring further legal action to challenge any actions by NAI that we consider to be unlawful, and we will do so. We remain confident that we will prevail in the lawsuit previously filed by CBS and the members of its Special Committee.”
Wall Street reacted negatively to the news, with CBS’s stock dropping more than 6% to $50.38 in early morning trading. One media analyst, Doug Creutz at Cowen & Co., picked up on the judge’s indications that he would intervene if National Amusements got aggressive.
“The Redstones haven’t (in the judge’s view) done anything truly damaging to shareholders yet, so the judge is denying the restraining order,” Creutz wrote this morning. “But if they do something that appears truly damaging, the judge may well intervene. The judge indicated that he expects the matter will wind up back in court based on what happens at the meeting. “
With an annual shareholder meeting scheduled for Friday, the House of Moonves pulled out the big sword in this corporate Game of Thrones.
“As previously announced, the CBS Board will hold a meeting at 5PM today to consider declaring a dividend of shares of Class A common stock to all of the Company’s Class A and Class B stockholders, as is permitted under CBS’ charter,” they said, backing down not an inch. “This dividend would more closely align economic and voting interests of CBS stockholders without diluting the economic interests of any stockholder.”
While there is much more courtroom drama to come, today’s order only adds to a week of allegations, accusations and a flurry of filings that has seen more cliffhangers than most of CBS’ shows last season.
A fact that Chancellor Bouchard acknowledged as much in his order.
“Although NAI’s execution of consents to implement the 90% Bylaw within hours of the court’s hearing on the instant motion belies defendants’ contention that plaintiffs’ concerns about Ms. Redstone are hypothetical or speculative, I am not convinced that the harm plaintiffs fear would be irreparable,” Chancellor Bouchard asserted in his order following a hearing yesterday that say a temporary TRO put in place pending a final order. “To the contrary, the court has extensive power to provide redress if Ms. Redstone takes action(s) inconsistent with the fiduciary obligations owed by a controlling stockholder,” he added of NAI’s move on Tuesday to suddenly alter CBS bylaws to make any voting share dilution only possible by a board supermajority.
“Plaintiffs already committed during yesterday’s hearing to challenge the validity of the 90% Bylaw, which this court will have the power to set aside if indeed it is proven to be invalid or inequitable,” Chancellor Bouchard noted.
CBS turned up the heat in its long-simmering conflict with Redstone, bringing it to a boil Monday, when it went to court seeking a restraining order to prevent Shari Redstone from interfering with a special board meeting to consider a measure that would reduce her voting control over the network.
The network maintained such extreme measures were necessary because of the risk that Redstone might replace CBS board members to force a merger with corporate sibling, Viacom, though Redstone has emphatically denied that’s the case.
Of course, Redstone wasn’t about to step aside and relinquish her family’s control over the company. National Amusements responded that CBS’s actions went too far — and were “unjustified” and “egregiously over broad,” even as National Amusements changed CBS’s corporate bylaws to make it harder for the board to issue a special dividend that would dilute its voting control over the network.
Eli Noam, professor of finance and economics at Columbia University and author of “Who Owns the World’s Media?” predicted a rough road ahead if CBS’s case got tossed out of court.
“It’s hard to imagine the CEO is going to be able to work with the controlling shareholder anymore, and vice versa,” said Noam. “In some ways, he’s burning his bridges.”