Will CBS’ Latest Attempt to Stop Shari Redstone Hold up in Court?

Will CBS’s latest attempt to block Shari Redstone from forcing a merger with Viacom hold up?

CBS’s board voted on Thursday to dilute Shari Redstone’s controlling interest in the company, reducing it from 79 percent to 17 percent. But the move might be in vain, according to Charles Whitehead, professor of law at Cornell University, because it disregarded Redstone’s change to the company’s bylaws earlier in the week, which require 90 percent of the board’s approval for any motion to carry.

The ordeal will soon head back to court — where CBS’s dilution strategy likely won’t stick.

“[Redstone’s] permitted to exercise her voting rights being given,” Whitehead told TheWrap. “This is not something the board should be stepping in and blocking. You have to accept that I, as a shareholder, have the ability to do this. It doesn’t say I have the ability to do this only if you the board want me to do this.”

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CBS “jumped the gun,” according to Whitehead, by trying to block Redstone’s meddling right now. Instead, this should have been a two-step process: Redstone changes the bylaws and pushes for a merger, followed by CBS shareholders arguing it isn’t the best deal they can get.

“If she does this terrible thing [forces a merger], you can sue. But she hasn’t done the terrible thing yet,” continued Whitehead. “Wait until she actually does the terrible thing.”

For those that haven’t been following the saga: for two years, Redstone has been pushing the network to once again combine with Viacom — something CBS CEO Les Moonves has staunchly opposed. CBS’s vote on Thursday essentially ignored Redstone’s amendment to its bylaws earlier in the week, which she believed made it virtually impossible to dilute her controlling interest.

CBS only grabbed 78.5 percent of the vote — 11 out of 14 board members — before diluting Redstone’s interest on Thursday. This puts the share dilution on unstable ground when the matter returns to court.

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For now, CBS’s best argument in court is that it stopped Redstone from doing irreparable harm to shareholders. CBS said on Thursday its maneuver was in the “best interest of all CBS stockholders,” and “necessary to protect stockholders’ interests and would unlock significant stockholder value.”

Others seem to share this belief. Needham analysts Laura Martin and Dan Medina said CBS, currently trading at $51.75 a share, could grab $70 a share from major telecom companies like Verizon. But it’ll be a tall task for CBS to show that Redstone violated her fiduciary responsibility by amending the bylaws — putting CBS’s stock dilution in peril.

“The remedy here is not for the board to ignore Redstone. The remedy is for the aggrieved shareholders to come back later and say the terms of what she’s offering are inconsistent with her obligation,” said Whitehead. “The breach of fiduciary duty isn’t the exercise of voting rights. The breach of fiduciary duty is “‘the the price is too low.’”

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Will CBS’s latest attempt to block Shari Redstone from forcing a merger with Viacom hold up?

CBS’s board voted on Thursday to dilute Shari Redstone’s controlling interest in the company, reducing it from 79 percent to 17 percent. But the move might be in vain, according to Charles Whitehead, professor of law at Cornell University, because it disregarded Redstone’s change to the company’s bylaws earlier in the week, which require 90 percent of the board’s approval for any motion to carry.

The ordeal will soon head back to court — where CBS’s dilution strategy likely won’t stick.

“[Redstone’s] permitted to exercise her voting rights being given,” Whitehead told TheWrap. “This is not something the board should be stepping in and blocking. You have to accept that I, as a shareholder, have the ability to do this. It doesn’t say I have the ability to do this only if you the board want me to do this.”

CBS “jumped the gun,” according to Whitehead, by trying to block Redstone’s meddling right now. Instead, this should have been a two-step process: Redstone changes the bylaws and pushes for a merger, followed by CBS shareholders arguing it isn’t the best deal they can get.

“If she does this terrible thing [forces a merger], you can sue. But she hasn’t done the terrible thing yet,” continued Whitehead. “Wait until she actually does the terrible thing.”

For those that haven’t been following the saga: for two years, Redstone has been pushing the network to once again combine with Viacom — something CBS CEO Les Moonves has staunchly opposed. CBS’s vote on Thursday essentially ignored Redstone’s amendment to its bylaws earlier in the week, which she believed made it virtually impossible to dilute her controlling interest.

CBS only grabbed 78.5 percent of the vote — 11 out of 14 board members — before diluting Redstone’s interest on Thursday. This puts the share dilution on unstable ground when the matter returns to court.

For now, CBS’s best argument in court is that it stopped Redstone from doing irreparable harm to shareholders. CBS said on Thursday its maneuver was in the “best interest of all CBS stockholders,” and “necessary to protect stockholders’ interests and would unlock significant stockholder value.”

Others seem to share this belief. Needham analysts Laura Martin and Dan Medina said CBS, currently trading at $51.75 a share, could grab $70 a share from major telecom companies like Verizon. But it’ll be a tall task for CBS to show that Redstone violated her fiduciary responsibility by amending the bylaws — putting CBS’s stock dilution in peril.

“The remedy here is not for the board to ignore Redstone. The remedy is for the aggrieved shareholders to come back later and say the terms of what she’s offering are inconsistent with her obligation,” said Whitehead. “The breach of fiduciary duty isn’t the exercise of voting rights. The breach of fiduciary duty is “‘the the price is too low.'”

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Is Les Moonves Done as CBS CEO?

CBS Board Votes to Dilute Shari Redstone's Controlling Interest

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Is Les Moonves Done as CBS CEO?

CBS and its Chief Executive Les Moonves have gone to the mattresses in an effort to subvert the control Shari Redstone and her family’s holding company National Amusements has over the media company.

But if this skirmish doesn’t go the way Moonves and CBS hope — and some analysts don’t think it will — the company’s leadership could be trouble.

“I think Les Moonves is done,” Ross Gerber, CEO of investment firm Gerber Kawasaki, told TheWrap. “I don’t think this ends well for Les or CBS. It’s not his company. He doesn’t own it, and I think he’s going to learn the hard way.”

Also Read: CBS Board Votes to Dilute Shari Redstone’s Controlling Interest

Redstone, despite public pushback from Moonves, has been pressing for CBS and sister company Viacom to merge for the better part of two years.

The CBS board, arguing that Redstone’s pressure has hurt the company and shareholders, voted on Thursday to dilute Redstone’s voting power to 20 percent from nearly 80 percent.

The decision was made, CBS said, in a unanimous vote of the company’s directors who are not affiliated with National Amusements. That is important because the vote isn’t final.

Redstone changed the company bylaws ahead of the board meeting on Thursday, requiring CBS have a 90 percent “supermajority” vote to approve diluting her stake. Redstone effectively controls three seats on the board, which would have made a CBS supermajority vote next to impossible.

Also Read: Inside CBS CEO Les Moonves’ ‘Nuclear Option’ Court Battle Today With Shari Redstone

CBS is set to challenge the validity of the bylaws change and is awaiting a court’s approval on the special dividend that would dilute Redstone’s control. CBS said on Thursday that it doesn’t believe the changes are valid or effective.

There’s no legal precedent for the CBS board is doing, so how the court will rule isn’t clear.

“It’s hard to imagine Les Moonves being in that job much longer now, unless CBS comes out on top, and the odds, in my perspective, seem to be in National Amusements’ favor,” media analyst Tuna Amobi, of investment research firm CFRA, told TheWrap.

Moonves’ current contract runs through 2021, and if he’s removed before then, the company could be on the hook to pay him more than $184 million.

But Redstone also isn’t afraid to go to war with her company’s leadership and oust a CEO. Just ask Philippe Dauman, who Redstone pushed out at Viacom in a messy tug-of-war for control back in 2016.

Needham analyst Laura Martin wrote in a note to investors on Friday that any scenario where Moonves leaves would be the worst case for CBS shareholders, predicting shares dropping 14 percent if that happens. That would be a $10 billion  swing of total value across all the company’s shareholders, compared to the perceived value were CBS to be acquired by a telecom company like Verizon, she said.

National Amusements will want to find a resolution that is in the interests of all shareholders, a person familiar with the situation told TheWrap.

Also Read: Les Moonves Jokes About Messy Legal Drama at CBS Upfront: ‘How’s Your Week Been?’

“[Moonves] is a great executive and he’s done a great job leading that company, but now Les and Shari have both hurt the company,” Gerber said. “Her request to remerge the two companies is not a crazy request and after all this I think it’s still not going to be his company.”

Gerber said that if National Amusements comes out on top, he expects Redstone to take a similar approach she did at Viacom in 2016: Remove the CEO and call a shareholder vote to replace the board.

Related stories from TheWrap:

CBS Shares Sink 5 Percent After Court Blocks Attempts to Stop Shari Redstone’s Involvement

Viacom Shares Plummet After CBS Sues to Block Merger

CBS Sues Parent Company to Dilute Shari Redstone’s Voting Power, Stop Viacom Merger

CBS and its Chief Executive Les Moonves have gone to the mattresses in an effort to subvert the control Shari Redstone and her family’s holding company National Amusements has over the media company.

But if this skirmish doesn’t go the way Moonves and CBS hope — and some analysts don’t think it will — the company’s leadership could be trouble.

“I think Les Moonves is done,” Ross Gerber, CEO of investment firm Gerber Kawasaki, told TheWrap. “I don’t think this ends well for Les or CBS. It’s not his company. He doesn’t own it, and I think he’s going to learn the hard way.”

Redstone, despite public pushback from Moonves, has been pressing for CBS and sister company Viacom to merge for the better part of two years.

The CBS board, arguing that Redstone’s pressure has hurt the company and shareholders, voted on Thursday to dilute Redstone’s voting power to 20 percent from nearly 80 percent.

The decision was made, CBS said, in a unanimous vote of the company’s directors who are not affiliated with National Amusements. That is important because the vote isn’t final.

Redstone changed the company bylaws ahead of the board meeting on Thursday, requiring CBS have a 90 percent “supermajority” vote to approve diluting her stake. Redstone effectively controls three seats on the board, which would have made a CBS supermajority vote next to impossible.

CBS is set to challenge the validity of the bylaws change and is awaiting a court’s approval on the special dividend that would dilute Redstone’s control. CBS said on Thursday that it doesn’t believe the changes are valid or effective.

There’s no legal precedent for the CBS board is doing, so how the court will rule isn’t clear.

“It’s hard to imagine Les Moonves being in that job much longer now, unless CBS comes out on top, and the odds, in my perspective, seem to be in National Amusements’ favor,” media analyst Tuna Amobi, of investment research firm CFRA, told TheWrap.

Moonves’ current contract runs through 2021, and if he’s removed before then, the company could be on the hook to pay him more than $184 million.

But Redstone also isn’t afraid to go to war with her company’s leadership and oust a CEO. Just ask Philippe Dauman, who Redstone pushed out at Viacom in a messy tug-of-war for control back in 2016.

Needham analyst Laura Martin wrote in a note to investors on Friday that any scenario where Moonves leaves would be the worst case for CBS shareholders, predicting shares dropping 14 percent if that happens. That would be a $10 billion  swing of total value across all the company’s shareholders, compared to the perceived value were CBS to be acquired by a telecom company like Verizon, she said.

National Amusements will want to find a resolution that is in the interests of all shareholders, a person familiar with the situation told TheWrap.

“[Moonves] is a great executive and he’s done a great job leading that company, but now Les and Shari have both hurt the company,” Gerber said. “Her request to remerge the two companies is not a crazy request and after all this I think it’s still not going to be his company.”

Gerber said that if National Amusements comes out on top, he expects Redstone to take a similar approach she did at Viacom in 2016: Remove the CEO and call a shareholder vote to replace the board.

Related stories from TheWrap:

CBS Shares Sink 5 Percent After Court Blocks Attempts to Stop Shari Redstone's Involvement

Viacom Shares Plummet After CBS Sues to Block Merger

CBS Sues Parent Company to Dilute Shari Redstone's Voting Power, Stop Viacom Merger

Media Analyst To Shari Redstone On CBS: “Choose Between Winning The Battle And Losing The War”

One prominent media analyst is calling on Shari Redstone’s National Amusements to hold a public auction for CBS to determine its fair market value and help evaluate whether Viacom is the best match. “It’s up to Shari Redstone to chose…

One prominent media analyst is calling on Shari Redstone’s National Amusements to hold a public auction for CBS to determine its fair market value and help evaluate whether Viacom is the best match. “It’s up to Shari Redstone to chose between winning the battle and losing the war,” wrote Needham & Co.’s Laura Martin. Martin told Deadline that “it would be irresponsible” for National Amusements to press for a merger with Viacom before hiring an investment banker and…

CBS Board Majority Supports Bid to Dilute Shari Redstone’s Voting Power, Annual Meeting Postponed

The board of CBS Corp. voted 11-3 on Thursday to dilute the voting power of Shari Redstone, in a striking rebuke to the company’s controlling shareholder. The dilution — which some have termed the “nuclear option” — would …

The board of CBS Corp. voted 11-3 on Thursday to dilute the voting power of Shari Redstone, in a striking rebuke to the company’s controlling shareholder. The dilution — which some have termed the “nuclear option” — would strip Redstone of her control of the $20 billion company. The vote will not take effect, however, […]

CBS Halts Tomorrow’s Annual Shareholder Meeting Following Board Vote Showdown

After a week of dramatic legal skirmishes with Shari Redstone and National Amusements in its battle to stop a proposed merger with Viacom, CBS today decided to hit the pause button on Friday’s long scheduled annual shareholder’s meeting.
“In light of t…

After a week of dramatic legal skirmishes with Shari Redstone and National Amusements in its battle to stop a proposed merger with Viacom, CBS today decided to hit the pause button on Friday's long scheduled annual shareholder's meeting. "In light of the recent actions by NAI and the pending litigation in the Delaware Chancery Court, the Board of Directors determined to postpone its 2018 annual meeting of stockholders that was previously scheduled to take place tomorrow,"…

CBS Board Votes to Dilute Shari Redstone’s Controlling Interest

CBS Corporation’s board of directors voted on Thursday to dilute controlling shareholder Shari Redstone’s interest to 20 percent from roughly 80 percent.

The company said in a statement that the symbolic decision was made in an unanimous vote of the board’s directors not affiliated with National Amusements.

“The board of directors 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,” CBS said in a statement. “If consummated, the dividend would enable the company to operate as an independent, non-controlled company and more fully evaluate strategic alternatives.”

The board’s vote to pay out a dividend to shareholders, is effectively also the board’s way of challenging a change to the bylaws Redstone made earlier this week. The board’s decision will require a final determination by a Delaware court, and there’s time for National Amusements to file an appeal on whether CBS’s move is permissible.

Also Read: CBS Shares Sink 5 Percent After Court Blocks Attempts to Stop Shari Redstone’s Involvement

All week CBS has been trying to claw its way out from under the control of Redstone and her family’s holding company National Amusements.

CBS has argued that Shari Redstone’s pressure on the company to merge with Viacom, which has resulted in uncertainty surrounding the company’s future amid threats to replace board members and leadership, has done the media company and its shareholders a disservice.

Redstone also owns a controlling interest in Viacom

“As National Amusements has repeatedly stated, it has no intention of forcing a merger that is not supported by both CBS and Viacom,” National Amusements said in a statement. ” Today’s board vote, while couched as an effort to prevent such a transaction, was pure pretext.  CBS management and the special committee cannot wish away the reality that CBS has a controlling shareholder.  NAI yesterday exercised its legal right to amend the company’s bylaws to require a supermajority vote on certain board actions with respect to dividends, effective immediately.  In light of the Board’s action today, that action was plainly necessary, and it is valid.”

Also Read: Shari Redstone Changes CBS Bylaws to Prevent Board From Diluting Her Control

CBS doesn’t believe that National Amusements’ change to the company bylaws were neither valid nor in effect.

With litigation looming, CBS has also postponed its annual shareholder meeting, which was scheduled for Friday. The company said it will announce a new date and time later.

For the better part of two years Redstone has all but demanded the two companies come to terms on a merger. CBS and chief executive Les Moonves have openly opposed joining up with Viacom.

The drama between CBS, National Amusements and Viacom intensified earlier this week after CBS filed for a temporary restraining order to block Redstone’s involvement in the company’s board, while also saying it wouldn’t consider a merger with Viacom.

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The move, along with initial plans to issue a dividend that would have diluted Redstone’s stake to 17 percent from close to 80 percent, was unprecedented and the court deemed it an “extraordinary measure.”

But Delaware Chancery judge Andre Bouchard rejected CBS’s motion for a restraining order on Thursday ahead of the company’s meeting. And Redstone changed the CBS bylaws, making it necessary for CBS to have her approval and the approval of her family lawyers who also sit on the board, in order to issue the dividend that would dilute her control.

CBS touts having an independent board, but for all intents and purposes it is still a controlled company where Redstone holds the power, for now.

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CBS Corporation’s board of directors voted on Thursday to dilute controlling shareholder Shari Redstone’s interest to 20 percent from roughly 80 percent.

The company said in a statement that the symbolic decision was made in an unanimous vote of the board’s directors not affiliated with National Amusements.

“The board of directors 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,” CBS said in a statement. “If consummated, the dividend would enable the company to operate as an independent, non-controlled company and more fully evaluate strategic alternatives.”

The board’s vote to pay out a dividend to shareholders, is effectively also the board’s way of challenging a change to the bylaws Redstone made earlier this week. The board’s decision will require a final determination by a Delaware court, and there’s time for National Amusements to file an appeal on whether CBS’s move is permissible.

All week CBS has been trying to claw its way out from under the control of Redstone and her family’s holding company National Amusements.

CBS has argued that Shari Redstone’s pressure on the company to merge with Viacom, which has resulted in uncertainty surrounding the company’s future amid threats to replace board members and leadership, has done the media company and its shareholders a disservice.

Redstone also owns a controlling interest in Viacom

“As National Amusements has repeatedly stated, it has no intention of forcing a merger that is not supported by both CBS and Viacom,” National Amusements said in a statement. ” Today’s board vote, while couched as an effort to prevent such a transaction, was pure pretext.  CBS management and the special committee cannot wish away the reality that CBS has a controlling shareholder.  NAI yesterday exercised its legal right to amend the company’s bylaws to require a supermajority vote on certain board actions with respect to dividends, effective immediately.  In light of the Board’s action today, that action was plainly necessary, and it is valid.”

CBS doesn’t believe that National Amusements’ change to the company bylaws were neither valid nor in effect.

With litigation looming, CBS has also postponed its annual shareholder meeting, which was scheduled for Friday. The company said it will announce a new date and time later.

For the better part of two years Redstone has all but demanded the two companies come to terms on a merger. CBS and chief executive Les Moonves have openly opposed joining up with Viacom.

The drama between CBS, National Amusements and Viacom intensified earlier this week after CBS filed for a temporary restraining order to block Redstone’s involvement in the company’s board, while also saying it wouldn’t consider a merger with Viacom.

The move, along with initial plans to issue a dividend that would have diluted Redstone’s stake to 17 percent from close to 80 percent, was unprecedented and the court deemed it an “extraordinary measure.”

But Delaware Chancery judge Andre Bouchard rejected CBS’s motion for a restraining order on Thursday ahead of the company’s meeting. And Redstone changed the CBS bylaws, making it necessary for CBS to have her approval and the approval of her family lawyers who also sit on the board, in order to issue the dividend that would dilute her control.

CBS touts having an independent board, but for all intents and purposes it is still a controlled company where Redstone holds the power, for now.

Related stories from TheWrap:

CBS Loses Court Bid to Block Shari Redstone's Maneuvers

Les Moonves Jokes About Messy Legal Drama at CBS Upfront: 'How's Your Week Been?'

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Showdown At Black Rock As Shari Redstone Set For CBS Board Meeting – Update

UPDATED WITH REDSTONE ATTENDANCE INFO: Rallying this week as the company sought to assert its independence over its controlling shareholder, CBS’ stock tumbled back to earth today after a Delaware judge denied the company’s legal moves and …

UPDATED WITH REDSTONE ATTENDANCE INFO: Rallying this week as the company sought to assert its independence over its controlling shareholder, CBS’ stock tumbled back to earth today after a Delaware judge denied the company’s legal moves and the board is set to vote on a dilution measure that now is largely symbolic. A vote that will see a face-off at Black Rock between CEO Les Moonves, whose independent directors led the court challenge, and Shari Redstone