Shari Redstone says CEO told the board he would quit unless her family lost its control
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 30, 2018).
Shari Redstone shot back at CBS Corp. in court Tuesday, alleging that CBS Chief Executive Leslie Moonves gave the CBS board an "ultimatum" that he would resign unless directors voted to strip her family of voting control.
In a complaint filed Tuesday in the Delaware Court of Chancery, Ms. Redstone and her family holding company, National Amusements Inc., say that CBS's action to strip National Amusements of voting control by issuing a dilutive dividend to all shareholders is invalid.
They say that the recent legal attacks against the Redstone family aren't motivated by the CBS board's concern over being forced to merge with corporate sibling, Viacom Inc., as CBS says. Rather, Ms. Redstone says that the motivation is Mr. Moonves's opportunistic seizure of the moment to throw off the yoke of having a controlling shareholder that he has long chafed against, according to the complaint.
"The only cogent, but manifestly improper, explanation for the Director Defendants' unprecedented action is that Leslie 'Les' Moonves, CBS's longtime CEO, has tired of having to deal with a stockholder with voting control and has taken particular umbrage that the exercise of such stockholder's control has migrated from Sumner Redstone to his daughter, Ms. Redstone," the complaint alleges.
Ms. Redstone, the vice chairman of CBS and Viacom, rose to power in 2016 following a power struggle at Viacom that led to the resignation of her ailing 95-year-old father, Sumner Redstone, from the boards of both media companies.
In the wake of several months of merger talks that stalled over how the merged company would be managed, CBS filed a lawsuit on May 14 saying it had voted against a merger and was seeking to block National Amusements from being able to replace any board members before it could vote on stripping the firm of control. National Amusements then changed CBS's bylaws to require 90% of directors to support such a move, a day before the CBS board held the vote. The outcome is now up to a Delaware judge.
"Today's reactive complaint from NAI was not unexpected," CBS said in a statement. "The amended complaint filed last week by CBS and its Special Committee details the ways in which NAI misused its power to the detriment of CBS shareholders, and was submitted after careful deliberation by all involved. We continue to believe firmly in our position."
In the complaint, Ms. Redstone and National Amusements reiterate their insistence that they were never going to pursue a merger without the companies' support. In fact, according to the complaint, a week before the CBS special committee convened to recommend against a merger and filed a lawsuit, "NAI had determined that it no longer supported a merger" and Ms. Redstone told Viacom's special committee about the decision. The special committee told her that it preferred to have a chance to complete its assignment, the complaint says. The court documents don't specify whether CBS was notified.
A person familiar with CBS's position said that neither National Amusements nor Viacom had ever suggested to CBS that they no longer supported the merger, and noted that National Amusements had been saying that a merger was close and that a price had been agreed upon.
Mr. Moonves had tried to rid himself of the Redstones' control at least twice before, Ms. Redstone and National Amusements say, first in 2006 and again in 2015.
The complaint says Mr. Moonves operated with great autonomy in recent years. In May 2017, he got a new contract with a $180 million golden parachute if he had "good reasons" for leaving the company, including too much meddling with the makeup of the board, the complaint states. His longtime second in command, Joe Ianniello, also got a $60 million golden parachute in his contract, which could be triggered if he did not succeed Mr. Moonves as CEO.
According to the complaint, neither of these provisions was discussed with the full CBS board. A source close to CBS said such deals are approved by independent subcommittees, and the full board isn't required to sign off on them.
The complaint also makes clearer the nature of the allegations of "bullying and intimidation" that Ms. Redstone and National Amusements had previously lodged against Charles Gifford, a director that she had asked to be quietly removed from the board.
In one case, the complaint alleges Mr. Gifford "acted in an intimidating and bullying manner, including on one occasion by grabbing [Ms. Redstone's] face and directing her to listen to him." Mr. Gifford later told her that he meant no offense, and "that was how he treats his daughters when he wants their attention," according to the complaint.
The incident occurred at the Super Bowl last year in Houston in front of several other people, according to people familiar with the matter. A source close to CBS said Mr. Gifford doesn't recall the incident in question and only remembers a friendly gesture at the Super Bowl.
Mr. Gifford referred calls for comment to CBS.
"Ms. Redstone's issue with Mr. Gifford is that he has always operated by an entirely different definition of what it means to be an independent director -- namely to act in the best interest of all CBS shareholders," CBS said. "As a result of Mr. Gifford's steadfast belief in good corporate governance, it is unfortunate and revealing that NAI has resorted to baseless personal attacks that are clearly tied to the execution of Mr. Gifford's duties in this matter."
Write to Keach Hagey at firstname.lastname@example.org and Joe Flint at email@example.com