Redstones Said to Oppose Giving Moonves Their Votes

  • Family, CBS chief must find common ground on governance
  • Moonves should get control of National Amusement vote: Gabelli

What Would CBS Get Out of a Merger With Viacom?

Shari and Sumner Redstone want Les Moonves to run a combined CBS Corp. and Viacom Inc., but they aren’t willing to offer him a stake or voting control of their family’s holding company, people familiar with the matter said.

The Redstones have said publicly that they won’t support a deal that requires them to give up control of CBS or Viacom. That includes surrendering voting control to Moonves, the chief executive officer of CBS, despite the Redstones’ respect for him, said the people, who asked not to be identified discussing private information.

Les Moonves

Photographer: Chris Goodney/Bloomberg

The family will have to seek common ground over governance with Moonves to go through with its plan to merge the two media giants with him as CEO. Reviving faded Viacom networks like MTV and Comedy Central might be a tempting challenge for Moonves, 67. But he has run CBS with little interference and would want similar freedom if the companies are joined together, according to a person familiar with his thinking.

Moonves will probably want language in his contract similar to his current CBS agreement, which guarantees that independent directors remain and says he reports solely to the board and is the highest-ranking executive of the company, said another person familiar with the matter.

Moonves may seek provisions preventing the Redstones from unilaterally replacing board members and limiting the board’s authority, the person said. That could prevent situations like earlier this year, when National Amusements forbade the proposed sale of a stake in Viacom’s Paramount Pictures movie studio without unanimous board approval.

To retain Moonves, the Redstones should consider giving him control of their voting shares, said Mario Gabelli, whose funds are some of the largest shareholders in CBS and Viacom. That would give Moonves a degree of freedom to pursue the best path for the company, Gabelli said.

“If I were Les, I would ask for that,” Gabelli said in an interview.

Spokesmen for CBS, Viacom and the Redstones declined to comment.

The Redstones, whose National Amusements Inc. owns an 80 percent voting stake in both companies, asked CBS and Viacom late last month to explore a merger. That request is part of a series of moves spurred by Shari Redstone, who won a battle this year against former Viacom CEO Philippe Dauman to control the fate of Viacom. She has spearheaded changes at the company, asserting herself with her 93-year-old father Sumner in poor health.

The idea now is to revive Viacom, whose Paramount Pictures movie studio is also in disarray, by putting the company under the experienced hand of Moonves, who has helped CBS retain its lead as the most-watched U.S. TV network.

There’s precedent for using voting control as a retention tool, Gabelli said. In the mid-1980s, billionaire Warren Buffett, agreed to vote his shares in Capital Cities/ABC Inc. with management as long as Tom Murphy and Daniel Burke, the company’s CEO and president, remained in place.

Majority of the Minority

Moonves’s level of control is just one of many issues that will likely be considered as CBS and Viacom begin discussions over a potential merger, people familiar with the process said. National Amusements requested that the businesses create special committees of their boards to consider a deal. The Redstones said they wouldn’t participate in board deliberations on the subject.

Sumner and Shari Redstone

Photographer: Mark Sullivan/WireImage

To prove their merger is backed by smaller investors, the CBS and Viacom boards may recommend that National Amusements recuse itself from any merger vote. That would mean that only the 20 percent of the voting shares not held by the Redstones vote on the deal, a practice known as a “majority-of-the-minority” vote. This approach could give Gabelli, whose funds hold more than 10 percent of the voting shares in both companies, the deciding vote in a merger. 

Gabelli was among investors whose control of voting shares brought down Cablevision Systems Corp.’s plans to go private in 2007 when the Dolan family allowed a majority of the minority to vote on that deal. To prevent Gabelli from dictating the outcome of a transaction, as a matter of perceived fairness, CBS and Viacom could allow the owners of Class B Viacom shares, which don’t have voting rights, to vote on the deal anyway.

Gabelli said he would have concerns about letting Class B shareholders vote.

“That would be very unusual,” he said. “I paid a premium to get the voting stock for my clients.”

More Fair Outcome

Majority shareholders like National Amusements don’t legally need to seek approval from minority investors for a merger. But courts in Delaware, where CBS and Viacom are incorporated, have been encouraging companies to do just that to produce a more fair outcome, according to Lawrence Hamermesh, a professor of law at Widener University’s Delaware Law School in Wilmington.

There’s no reason Gabelli couldn’t be given the deciding vote, if there aren’t any circumstances where he shouldn’t, Hamermesh said. He said he’d never heard of a situation where non-voting shareholders got the right to vote.

The Viacom special committee examining a merger is composed of five newly appointed directors and one from the old Viacom board. Some longer-serving board members encouraged Shari Redstone to have a more balanced representation of old and new directors to avoid the impression she was forcing the merger on the company, according to people familiar with the matter. Shari Redstone prevailed in the current composition of the special committee.

(Corrects number of directors on committee in final paragraph of story that ran on Oct. 11.)
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