CBS Takes Redstones to Court as Hopes Fade for a Viacom Deal
(Bloomberg) -- A long-simmering dispute between CBS Corp. and the daughter of billionaire Sumner Redstone erupted into open warfare, throwing a potential deal with Viacom Inc. into doubt.
The broadcaster sued controlling shareholder National Amusements Inc. on Monday, the first step in an attempt to wrest control of the media company from the Redstone family. CBS wants to head off a threat by heiress Shari Redstone to oust some of the network’s directors and block a shareholder vote on a proposal to lessen the Redstones’ control of the broadcaster.
Hanging in the balance is a potential merger between CBS and Viacom, two companies controlled by the Redstones. After a year and a half of resisting National Amusements’s entreaties to pair up the businesses, CBS decided to challenge its controlling shareholder -- a move that could give its leadership greater power to merge with other companies.
“Ms. Redstone has acted to undermine the management team, including, without board authority, talking to potential CEO replacements, deriding the chief operating officer and threatening to change the board,” CBS officials said in the suit, filed in Delaware Chancery Court.
“National Amusements is outraged by the action taken by CBS and strongly refutes its characterization of recent events,” Sara Evans, an outside spokeswoman for the Dedham, Massachusetts-based theater owner, said in an emailed statement. “NAI had absolutely no intention of replacing the CBS board or forcing a deal that was not supported by both companies.”
Viacom declined to comment.
Judge Andre Bouchard has set a hearing for May 16 on CBS’s request for a restraining order that would prevent Shari Redstone from blocking a May 17 special shareholder meeting to consider a dividend that would dilute the voting shares of Redstone’s company to 17 percent from 79 percent.
The move rattled shares of Viacom, with investors betting that a CBS takeover is less likely. The stock fell as much 7.3 percent to $28.01, the biggest intraday decline in four months. CBS gained as much as 5.6 percent to $55.47.
CBS’ gambit is a “clever move,” according to Mario Gabelli, whose firm GAMCO is the largest holder of voting stock in both companies after National Amusements. Holders of voting shares should get a premium, Gabelli tweeted Monday.
The two companies have been locked in an unusual tussle. The Redstone family controls both businesses, and they were one corporation before a breakup more than a decade ago. But getting them back together has proved challenging. Shari Redstone has indicated before that she wants Viacom CEO Bob Bakish to become the combined company’s second-in-command. CBS Chief Executive Officer Leslie Moonves would prefer to keep his own people in charge.
The network suit is an effort to stop Shari Redstone from copying her father’s 2016 gambit to reassert control over the Viacom board once questions arose about whether the billionaire’s mental capabilities were waning.
The Redstone family booted Viacom CEO Philippe Dauman off the board along with four other directors so the controlling shareholder could change Viacom’s management, which the Redstones blamed for the company’s declining stock price at the time. Dauman later resigned as Viacom’s CEO.
Shari Redstone sits on the boards of both CBS and Viacom, and is the president of National Amusements, the movie theater chain through which her family controls those two media companies.
Redstone’s mental health was at the center of a more than year-long fight over Viacom. The dispute pitted the billionaire against his granddaughter, ex-Viacom allies and old friends. The settlement of the dispute cleared the way for Shari Redstone to take a more prominent role on Viacom’s board. Sumner Redstone, 94, is no longer a Viacom director and serves in a non-voting position on CBS’s board.
CBS officials contend Shari Redstone pushed to have her father’s lawyer, Robert Klieger, named to the billionaire’s CBS board seat. Klieger has been “instructing management and other directors on Ms. Redstone’s/NAI’s wishes -- including the desire to replace certain directors,” according to the suit.
The broadcaster’s board contends it’s “only a matter of time before Ms. Redstone will attempt to replace the independent directors at CBS who do not agree with her positions, just as she and NAI did at Viacom two years ago,” according to the suit. They acted to insure decisions are made “that would be in the best interests of all CBS shareholders and not just” the Redstones’ company, the company claims.
“Ms. Redstone’s potential response to the Special Committee’s rejection of a Viacom transaction poses an existential threat to CBS,” the network’s lawyers added in court filings. “If Ms. Redstone can replace Board members or modify the Company’s governance documents in the next three days,” it would unfairly deny investors the right to consider whether to approve the dividend, according to the filing.
Bouchard ruled last month that CBS investors could sue directors over claims they improperly granted Sumner Redstone millions in compensation after he became incapacitated in 2014.
CBS has been the most-watched television network in primetime for 14 out of the past 15 seasons and for the past nine consecutive years. CBS separated from Viacom, owner of MTV, Comedy Central and Paramount Pictures, in 2005.
Shari Redstone has been agitating to combine Viacom with CBS in order to give her companies greater heft in a consolidating market. Rival media companies 21st Century Fox Inc. and Time Warner Inc. have both agreed to sell themselves to larger players.
Viacom’s value has plummeted in recent years due to the shrinking viewership of cable networks such as MTV and Comedy Central. All TV companies are struggling from the migration of viewers to online services Netflix and YouTube. Viacom has suffered more than most given its reliance on young viewers, and its lack of developing hits.
The case is CBS Corp. v. National Amusements Inc., No. 2018-0342, Delaware Chancery Court (Wilmington).
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