Redstone Has a $187 Million Reason Not to Oust CBS's Moonves

(Bloomberg) -- If Leslie Moonves’s CBS Corp. can’t agree on a deal with Viacom Inc., Shari Redstone still has as many as 187 million reasons to keep the media boss around.

That’s based on the payout that Moonves would stand to collect if his contract is terminated before it expires. Redstone, the controlling shareholder of both companies and the catalyst for renewed negotiations, has the power to oust management to get the merger she wants.

Moonves’s contract entitles him to about $150 million if he’s dismissed before it expires in June 2021, or if he’s demoted and decides to leave. Including additional payments, that number rises to $187 million, and could end up soaring to $280 million if CBS’s stock and adjusted operating income outperform ambitious internal targets over the next few years, according to data compiled by Bloomberg.

That number could become more important as Redstone’s battle to combine the two multibillion-dollar businesses intensifies. Her family investment vehicle, National Amusements Inc., has about 80 percent of the voting rights in both companies -- and the power to replace boards and management -- though it owns much less of the actual stock.

“It is fair to say this is a governance mess,” said James Post, professor emeritus of the Questrom School of Business at Boston University. “Other shareholders have very little voice and power over the outcome.”

A representative for CBS, which owns the most-watched network in the U.S., said that the industry and the marketplace know Moonves’s record and that it speaks for itself. Under his stewardship, the company’s stock price has more than doubled since Redstone’s father, Sumner Redstone, split the businesses apart in 2006.

Redstone Has a $187 Million Reason Not to Oust CBS's Moonves

The biggest hurdles to a deal remain price and who will lead the new company.

Moonves, who was unenthusiastic enough about a potential deal with Viacom to explore alternatives with Verizon Communications Inc. and Lions Gate Entertainment Corp., wants CBS Chief Operating Officer Joseph Ianniello as his No. 2. A special committee of Viacom’s independent shareholders -- and Redstone -- have pushed for CEO Bob Bakish to take that role in the combined group. Redstone wants executives from both companies to run the entity after a merger, people familiar with the matter said last week.

The ball is now in CBS’s court, after Viacom responded to its initial, below-market proposal with a counteroffer demanding a higher price and a role as president and chief operating officer for Bakish. A special committee of CBS’s independent directors is considering a response, people with knowledge of the matter said.

Possible Savings

One discrepancy is the savings that a merger might generate. CBS sees cost savings of around $500 million, the people said. Viacom has a figure closer to $1 billion, including cost and revenue benefits. CBS has pointed out that its offer, though below market, represents a premium to where the Viacom was trading before news of the latest talks became public. CBS is offering 0.55 share of its stock for each of Viacom’s Class B, while Viacom is seeking a 0.68 exchange ratio.

If disagreements can’t be resolved, Redstone can appoint new board members and change management to try to push a deal through.

That option won’t come cheap. Moonves is eligible to receive cash severance totaling about $115 million, regulatory filings show. He’s accumulated $13.3 million under several pension plans and has unvested equity awards worth at least $22.5 million, based on CBS’s Wednesday closing price, which would pay out immediately if he’s dismissed, assuming the company performs according to its targets.

His contract also lets him remain as a senior adviser to CBS for five years after a termination, with a $5 million annual salary and a one-time equity award worth $10.5 million during that period. CBS must also pay for an office in either New York or Los Angeles, a personal secretary, security services and up to 100 hours of flights on private jets annually for that time.

Three long-term equity awards will pay out to Moonves if CBS’s stock price tops ambitious targets in coming years. The grants were worth a combined $59 million at the target level. Last year, he got a cash award tied to adjusted operating income for the four years ending in June 2021, which would yield an additional $33 million if goals are met.

The Redstones haven’t shied away from paying large sums to oust top employees. Viacom’s ex-CEO Philippe Dauman collected exit payments of as much as $95 million when he left the company in 2016.

But National Amusements isn’t quite at that place yet on this deal, reiterating hope on Wednesday that Moonves can lead a combined company. “National Amusements has tremendous respect for Les Moonves and it has always been our intention that he run a combined company,” NAI said in a statement.

©2018 Bloomberg L.P.