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CBS : Shari Redstone Hits Back at CBS -- WSJ

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05/17/2018 | 08:48am CEST

Move aims to block attempt to strip her family's voting power over media company

By Keach Hagey and Joe Flint 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (May 17, 2018).

Shari Redstone fired back at CBS Corp., moving to block the media company's efforts to strip her family of voting control.

In a power move to protect its position as the media giant's controlling shareholder, the Redstones' family holding company dictated a significant change on Wednesday to the rules of how CBS's board operates. The adjustment would make it nearly impossible for the current directors to be able to water down the family's voting power.

The decree marks a significant escalation in the battle breaking out between Ms. Redstone and CBS Chief Executive Les Moonves in a long-running disagreement over the future of the media company and Ms. Redstone's desire to recombine CBS with Viacom Inc. The fight has been thrust into the courts as both sides attempt to outmaneuver the other and decide the fate of the television powerhouse.

CBS said in a lawsuit this week that it wants to prevent Ms. Redstone and her family's National Amusements Inc. holding company from overhauling CBS's board and forcing a merger with Viacom.

The Redstones and National Amusements responded Wednesday in a legal filing, saying they had no such intentions. They called CBS's attempts to issue new voting shares to reduce their nearly 80% voting control to 17% "egregiously overboard and unjustified." They also argue that CBS would have other options legally that wouldn't require diminishing the Redstones' voting interest, including challenging the removal of any director.

"This is an unprecedented usurpation of a controlling stockholder's voting power," National Amusements' lawyers wrote.

The documents filed by the Redstones were in opposition to the motion for a temporary restraining order that CBS's special committee of independent board members filed on Monday. The committee is seeking to block National Amusements from replacing board members or modifying the company's governance documents before CBS convenes a special meeting on Thursday to vote on diluting the Redstones' control.

In a Wednesday hearing in Delaware Chancery Court, the judge ordered an effective standstill to prevent both sides from making any more moves before he issues a decision on CBS's request for the temporary restraining order. The written decision was expected by Thursday before CBS's board meeting.

Judge Andre Bouchard ordered the short-term standstill in response to National Amusements' last-minute maneuvering before the hearing. "I have never seen anything quite like what transpired here," he said.

A half-hour before the start of the hearing, National Amusements announced a change to CBS's bylaws requiring a supermajority of board members to approve actions such as dividends and amendments to bylaws. The effort to dilute National Amusements' voting power is structured as a stock dividend, and as long as National Amusements is still the controlling shareholder, it has the power to change CBS's bylaws without signoff by the board.

The supermajority requires 90% of CBS's 14 board members to approve such a change, according to a person familiar with the matter. Because Ms. Redstone, who is vice chairman of CBS, would likely have the support of the two Redstone family lawyers also on the board, Rob Klieger and David Andelman, that would make CBS's proposed dilution of the Redstones' voting control unlikely to pass, the person said. Neither Mr. Klieger nor Mr. Andelman responded to a request for comment.

"The latest step by NAI provides further evidence of why we concluded that we had no choice but to file our action in the Delaware courts, in order to protect the interests of all CBS shareholders," CBS said in a statement in response to the bylaw change. "We continue to be confident in our position and look forward to presenting our case in court."

In court documents, National Amusements said that while it had no intention of overhauling CBS's management and board, CBS's latest actions "have forced NAI to consider exercising its rights."

Ms. Redstone has been urging CBS and Viacom, the two companies National Amusements controls, to consider a merger for the better part of two years. After dropping an effort in late 2016, she revived it at the start of the year.

According to the National Amusements' lawyers, the CBS and Viacom special committees considering the merger came to an economic agreement on the terms of the merger, and were simply held up over Ms. Redstone's desire that Viacom Chief Executive Bob Bakish get a board seat in the merged company -- a nonstarter for Mr. Moonves.

A CBS spokesman said, "There could not have been a deal on price in isolation from the other aspects of this transaction."

CBS said in court documents that its special committee came to the conclusion last weekend that a merger wasn't in the best interests of CBS shareholders. In determining to take action to dilute the Redstones' voting interest, CBS pointed to media reports, including in The Wall Street Journal, that Ms. Redstone was considering replacing board members.

While National Amusements denies it ever considered a wholesale overhaul of CBS's board, it said in its filing that it did push to replace one CBS board member: Charles Gifford. A major figure in Boston's financial community and chairman emeritus of Bank of America, Mr. Gifford is close to Mr. Moonves and sat on CBS's powerful compensation committee, according to people familiar with the matter.

He also sits on CBS's special committee, which consists of five independent directors evaluating the merger. All five were named as plaintiffs along with CBS in Monday's lawsuit against Ms. Redstone and National Amusements.

Last Friday, Mr. Klieger, who is Ms. Redstone's lawyer in addition to being a CBS director, resurfaced longstanding concerns about Mr. Gifford and his behavior, and asked that he be removed from the board.

CBS said in a statement that it is "unfortunate and revealing that NAI has resorted to baseless personal attacks against a member of the CBS Board and its Special Committee," adding that the allegations against him are "not only vague and unsubstantiated, they are utterly inconsistent with our knowledge of him." CBS added that just six weeks ago NAI "expressed its intention in an SEC filing to re-elect him."

Mr. Gifford referred a call to CBS and its statement.

National Amusements argues that voting to strip it of its controlling position would be "a breach of fiduciary duty by the directors who vote in favor of it" with "simply no precedent in Delaware law." It further argues that the dilutive dividend would be "invalid," based on past court actions protecting the rights of controlling shareholders.

CBS countered that it is a "basic principle of Delaware law that a controlling stockholder cannot use its control over corporate process to harm other stockholders."

National Amusements said it was "at a loss to explain" CBS's actions "except that CBS Board and management team have simply become uncomfortable with the reality that CBS has a controlling stockholder and would prefer that that not be the case."

--Peg Brickley contributed to this article.

Write to Keach Hagey at keach.hagey@wsj.com and Joe Flint at joe.flint@wsj.com

Stocks mentioned in the article
ChangeLast1st jan.
CBS CORPORATION -0.28% 56.58 Delayed Quote.-4.10%
VIACOM 0.68% 32.59 Delayed Quote.5.78%
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