Shari Redstone, vice chairman of Viacom Inc., left, speaks with Les Moonves, president and chief executive officer of CBS Corp. (Photographer: David Paul Morris/Bloomberg)

Moonves Sets Stage for Final Showdown With Redstone Family

(Bloomberg) -- Leslie Moonves has decided the fate of countless TV shows, from “Survivor” to “C.S.I.” Now he’s trying to write his own finale.

CBS Corp., where Moonves serves as chairman and chief executive officer, sued its controlling shareholder National Amusements Inc. on Monday -- an unusual legal maneuver intended to block an unwanted merger with Viacom Inc. and wrest control of CBS away from Sumner Redstone and his heirs, the very family that put Moonves in power.

This could be the last stand for Moonves, a 68-year-old former actor who has run CBS for the past 13 years. If he prevails, he would emerge from this legal dispute free from control of the Redstone family, for whom he’s worked for nearly two decades. Or he can get ousted from his company, an unceremonious end to one of the most storied careers in the modern media business.

CBS claims Shari Redstone, president of National Amusements, isn’t acting in shareholders’ best interests, and must be prevented from replacing board members to force the network to merge with Viacom on her terms.

A Delaware chancery court judge will hear CBS’s argument on Wednesday, a day before the company’s board is scheduled to vote on National Amusements’ voting stake in CBS. Judge Andre Bouchard must decide if CBS’s board has the power to dilute NAI’s voting control.

CBS Takes Redstones to Court as Hopes Fade for a Viacom Deal

A board committee set up to weigh the Viacom merger is recommending directors approve a stock dividend that would dilute NAI’s voting power to approximately 17 percent from 80 percent -- a move it says will protect the interests of CBS’s stockholders.

“No management team can perform in the shadow of the dangerous power Ms. Redstone wields,” the company said in a filing.

CBS filed suit after weeks of negotiations with Viacom, the owner of MTV, Comedy Central and Paramount Studios, which also is owned by the Redstone family. National Amusements labeled the act an outrage, and said it would “defend our position vigorously.”

Wall Street would seem to prefer that CBS not pursue a Viacom deal. CBS shares climbed 2.2 percent on Monday. And Sanford C. Bernstein & Co. analyst Todd Juenger upgraded his rating on CBS to outperform, saying he sees the chances of a merger as close to zero for many years to come.

NAI said in an emailed statement that special committees for both companies had reached a provisional agreement on economic terms. NAI said it believes its allegations of bullying and intimidation by one CBS director precipitated the lawsuit. Those allegations date back to 2016, it said.

Shari Redstone has been urging Moonves to merge with Viacom since she and her father deposed that company’s CEO, Philippe Dauman, in 2016. Viacom’s value had plummeted under Dauman’s stewardship, and the Redstones hoped Moonves could restore the company to its former glory. Viacom, which also owns the Nickelodeon child-targeted channel, was once the crown jewel of the Redstone’s media assets.

Viacom’s CEO

The two companies are locked in an unusual tussle. The Redstone family controls both businesses, and they were one corporation before a breakup in 2005. Getting them back together has proved challenging. Shari Redstone has indicated she wants Viacom CEO Bob Bakish to become the combined company’s second-in-command. Moonves wants to keep his own people in charge.

Though Moonves was more keen to combine with a media company on stronger footing, he was willing to join with Viacom so long as he received assurances of his independence from the Redstone family. The billionaire and his daughter never gave him those assurances, CBS said in its legal filing.

Moonves, who had already seen the Redstones oust Dauman, opted to pre-empt any move against him by challenging his controlling shareholders’ grip on power by using the dividend as a defense measure, said Larry Hamermesh, a Widener University professor who specializes in Delaware corporate law.

Showing Harm

“It may be tough for directors to show there’s irreparable harm to the company that justifies the dilution,’’ Hamermesh said. “The dividend that dilutes NAI down to 17 percent is pretty strong stuff.’’

Other companies with stock structures that allow investors to use voting power to control a firm have come under attack in Delaware, said Charles Elson, director of the John L. Weinberg Center for Corporate Governance at the University of Delaware.

Last year, Facebook Inc. scrapped plans to create a class of nonvoting shares that would have allowed founder Mark Zuckerberg to retain voting control even while selling almost all his shares to fund philanthropic endeavors. “These dual-stock structures are becoming increasingly disfavored,’’ Elson said.

NAI owns about 10 percent of CBS’s shares, but the family’s voting power gives its nearly 80 percent control in CBS, which operates the Showtime premium cable network as well as its namesake broadcast network.

“While there is likely some months ahead of legal proceedings, we think this move all but kills a deal in any recognizable form,” Steven Cahall, an analyst with RBC Capital Markets, said in a note.

©2018 Bloomberg L.P.

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