deals

CBS Directors' Revised Suit Targets Bylaw Changes

Corrected
  • Board files new complaint decrying changes as ‘inequitable’
  • CBS, Redstones in control fight over U.S. most-watched network

Why the CBS-Redstone Lawsuit Is Such a Significant M&A Milestone

CBS Corp. challenged a Redstone family corporate bylaw change aimed at blocking the board’s move to wrest control from them amid a struggle over a merger of the media company with Viacom Inc.

Board members contend the bylaw changes, which require 90 percent of directors to have approved a stock-dilution plan, should be thrown out, according to a revised version of the suit filed in Delaware Chancery Court Wednesday. A majority of the board approved the stock proposal May 18.

It’s the latest twist in the control battle over CBS, which pits Les Moonves, the company’s chief executive officer, against Shari Redstone, president of the controlling shareholder National Amusements Inc., which holds voting control of CBS. She’s the daughter of billionaire Sumner Redstone. CBS has been the U.S.’s most-watched TV network in prime time for a decade.

It was Shari Redstone’s effort to merge Viacom and CBS that sparked the fight. She has been advocating a merger for almost two years, a move CBS has resisted unless Moonves was granted autonomy to run the combined companies.

“National Amusements exercised its legal right to amend CBS’s bylaws and this change was effective immediately,” said Sara Evans, an outside spokeswoman for NAI. “We are confident the court will uphold NAI’s action.”

The directors claim they were forced to adopt the dilution plan as a defensive measure against Shari Redstone’s campaign to impose the merger with Viacom on her terms. She’d been threatening to oust board members and change the company’s bylaws and charter for months, according to court filings. Independent directors of CBS and Viacom, who have been considering a merger since February, have been unable to agree on a deal.

CBS-Redstone Fight Isn’t Over -- in Court or the Boardroom

“The 90 percent voting requirement was therefore designed to give NAI and Ms. Redstone an effective veto” over the board’s opposition to the merger, the directors said in the revised complaint.

The changes make it impossible for CBS directors to independently evaluate the Viacom merger’s value and carry out their fiduciary duties to all of the company’s shareholders, the board says. Viacom owns the MTV and Comedy Central channels and Paramount Studios.

CBS’s board voted to dilute Redstone’s control at a meeting in New York last week by a vote of 11 to 3. Almost a dozen people spoke at the meeting, including Moonves, Shari Redstone, legal counsel and a financial adviser.

Bruce Gordon, a former Verizon executive who leads the board committee that evaluated the Viacom merger proposal, outlined the group’s considerations and “stressed the Special Committee’s significant concerns with respect to defendants’ ongoing interference with management,” according to the suit.

Moonves’s Objection

Moonves said CBS’s recent successes stemmed from the independence of its board and its management and that he couldn’t “successfully lead the company under these circumstances,” according to the complaint.

For her part, Shari Redstone told her CBS board colleagues that she didn’t intend to force a transaction with Viacom and there were no plans to oust directors. She declined to elaborate, according to the lawsuit.

Every member of the board, save for those affiliated with National Amusements, voted to dilute the Redstone family’s control. That includes Martha Minow, a former dean of Harvard Law School.

“Redstone has made no commitment that she will not replace CBS’s independent board with directors who would be willing to approve a CBS merger with Viacom and otherwise do her bidding,” according to the board’s complaint.

Delaware Chancery Court Judge Andre Bouchard will decide whether CBS directors have the power to dilute the Redstone family’s control and whether Shari Redstone overstepped her bounds as the media company’s controlling stockholder at a trial next year.

The case is CBS v. National Amusements Inc., No. 2018-0342, Delaware Chancery Court (Wilmington).

(Corrects to remove trial date in second paragraph.)
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