Shari Redstone’s National Amusements has taken the nuclear option this morning, changing CBS Corp.’s bylaws ahead of Thursday’s planned board meeting to consider diluting the family’s control over the network and a possible merger with Viacom.
In a statement sent out just before a court hearing in Delaware on CBS’s desire for a temporary restraining order, NAI said that it has now amended the media company’s bylaws. The changes would require a supermajority of CBS directors — that is, 90% — to approve a special dividend.
The amendment is designed to prevent what NAI describes as an “unlawful action” earlier this week by CBS and the special committee to consider issuing voting shares of stock to investors who now own non-voting shares, effectively diluting Redstone’s control over the company.
“NAI remains singularly focused on ensuring the long-term success of CBS,” the company asserts. “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. 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.”
CBS says hold your horses and those bylaw changes, which actually take 20 days to kick in under federal law for a publicly traded company.
“The latest step by NAI provides further evidence of why we concluded that we had no choice but to file our action in the Delaware courts, in order to protect the interests of all CBS shareholders, the Les Moonves run corporation responded. “We believe the NAI action is unlawful, and we are confident in our position and look forward to presenting our case in court.”
Having started on May 14 with CBS’ breaches of fiduciary duty filing and ahead of the network’s upfront presentation today, the upcoming pivotal hearing is still on – say both sides.
National Amusements characterizes the amendment as the least it could possibly do under the circumstances, in which CBS confronts it with two unacceptable options: accept a loss of control or get rid of the network’s board of directors.
It tried, unsuccessfully, to negotiate a so called “stand-still agreement,” in which National Amusements agreed not to remove directors or interfere with the merger so long as CBS’s board postponed the special dividend vote. They two sides couldn’t reach an agrement.
“NAI felt compelled to act due to the precarious circumstances that Plaintiffs’ machinations have created,” Redstone attorney Matthew Fisher told Delaware Court of Chancery Chancellor Andre Bouchard in a letter today after a flurry of back and forth filings (read it here). “NAI took this action reluctantly, after negotiations with Plaintiffs over a mutually acceptable status quo arrangement broke down and after the boards of the NAI entities met this morning at 9:00 a.m. to authorize delivery of the consents to protect NAI’s rights.”
“While NAI feels very strongly in the merits of its position that the TRO should not be granted, NAI would be remiss if it avoided taking the limited actions described above to protect its position,” Fisher added.
“In deference to the Court, NAI has not yet taken any action to remove directors, which by virtue of its majority voting position, it has every right to do,” the lawyer goes on to say, with a velvet glove around a studded iron first of sorts. “However, NAI reserves such right and reserves the right to effect further amendments to the Bylaws, subject to the Court’s decision on the pending motion. Accordingly, the Bylaw amendments have not mooted Plaintiff s TRO motion, and we believe that the hearing on the TRO Motion remains necessary.”
With the timeline and billions at stake in a potential merger with Viacom, the high-stakes boardroom battle between CBS and its controlling shareholder, Redstone, is as dramatic as any show the network is likely to unveil today for its prime time lineup.
With friction already sparking between the parties the past few weeks, tensions escalated Monday, when CBS broadsided NAI and Redstone in seeking the TRO to prevent what it correctly claimed was probable interference with a special board meeting to consider diluting her control over the company.
Independent members of the board alleged meddling on Redstone’s part — including threats of removing board members and taking other actions to force a merger — charges that National Amusements categorically denied in statements and filings this morning.
In fact, National Amusements fired back in a court response that accused CBS of “ambush” tactics and arguing that the remedy the CBS board propose, diluting National Amusements’ voting power from 80% to 17%, is “egregiously overboard and unjustified.”
CBS warned of “irreparable harm” if the court didn’t intervene.
Like we said earlier, this is Game of Throne style stuff and could see Moonves out the door within days or Redstone’s aims for control and a merged media giant stymied.