A special committee of CBS independent directors asked a federal court on Monday to block National Amusements Inc. chief Shari Redstone from interfering in a scheduled vote that could quash Redstone’s attempts to combine the broadcaster with its former corporate sister Viacom.
The suit, filed in Delaware Chancery Court, is seeking a temporary restraining order against NAI from interfering in a May 17 meeting of CBS shareholders, where they will vote on whether to issue a dividend that would dilute NAI’s voting control in the company from 79% to 17%.
“The dividend would not dilute the economic interests of any CBS stockholder,” the committee said in a statement. “The Special Committee has taken this step because it believes it is in the best interests of all CBS stockholders, is necessary to protect stockholders’ interests and would unlock significant stockholder value. If consummated, the dividend would enable the Company to operate as an independent, non-controlled company and more fully evaluate strategic alternatives.”
The special committee, in a meeting on May 13, recommended that CBS shareholder reject the Viacom merger and in the suit said it “believes that the company and its public stockholders face a serious threat of imminent, irreparable harm in Ms. Redstone’s potential response,” to the recommendation.
Redstone, who is also vice chair or both CBS and Viacom, has been hot to re-combine the two companies, separated in 2006, but has met resistance from CBS management. According to reports over the past several weeks, Redstone has insisted that the combined company position Viacom CEO Bob Bakish to be the ultimate success to CBS chairman and CEO Les Moonves. Moonves has insisted that his current No. 2, CBS chief operating officer Joseph Ianniello, continue that role in the combined company.
Redstone’s stance appeared to be softening in recent weeks – a Wall Street Journal story earlier this month suggested that Redstone was dropping her insistence that Bakish be given a top management role in exchange for giving him a board seat. But that too met with resistance from CBS executives. In recent conference calls to discuss quarterly results, neither side would comment on merger talks.
But behind the scenes, according to the suit, negotiations have become nastier.
According to the suit:
- "Ms. Redstone interfered with the CBS Board nomination process and installed on the Board the Redstones’ personal lawyer, who has sought to implement her directives;
- "Ms. Redstone has acted to undermine CBS’s management team in a series of escalating attacks, including by talking to potential CEO replacements without Board approval and deriding executives;
- "In proposing a CBS-Viacom merger in 2018, Ms. Redstone refused to agree to typical public company governance and improperly interjected herself into negotiations;
- "Ms. Redstone reportedly expressed her willingness to replace CBS directors to compel a merger with Viacom regardless of the Special Committee’s process, deliberations, and conclusion;
- "Ms. Redstone unilaterally, and without Board approval, informed a potential acquirer of CBS to not make an offer for the Company, depriving the Board of the opportunity to consider a potentially value-enhancing transaction."
“The Special Committee members, all independent directors of the Company, unanimously believe that the CBS Board has a fiduciary duty to act now to protect all stockholders and prevent Ms. Redstone from further breaches of her fiduciary duties,” the suit continued.
In a statement, National Amusements said it was "outraged" at CBS's accusations and looks forward to repudiating them in court.
“National Amusements (NAI) is outraged by the action taken by CBS and strongly refutes its characterization of recent events," NAI said in its statement. "NAI had absolutely no intention of replacing the CBS board or forcing a deal that was not supported by both companies. NAI’s conduct throughout supports this, and reflects its commitment to a well-governed process.
"CBS itself expressed support for the strategic merits of a combination with Viacom, and it is our understanding that both Special Committees had reached a provisional agreement on economic terms," NAI continued. "NAI believes CBS’s action today was precipitated following NAI raising specific concerns about incidents of bullying and intimidation in relation to one CBS director, dating back to 2016. NAI has made every effort to deal with this matter privately and confidentially. Unfortunately, CBS’s action today continues to enable and empower such conduct. Ensuring the long-term success of CBS continues to be NAI’s sole interest. This precipitous lawsuit, and the efforts of CBS management and its “independent” directors to wrest voting control from NAI, are outrageous. We intend to defend our position vigorously and look forward to presenting our arguments in court.”