Sumner Redstone’s family fended off a challenge to their control of CBS Corp. by Chief Executive Officer Leslie Moonves, increasing the likelihood that the media company will merge with Viacom Inc.
The ruling Thursday by a Delaware judge is a victory for Shari Redstone, a CBS director and president of the family’s movie theater operator National Amusements Inc. who is pushing for a merger. NAI also controls Viacom.
The move sent shares of CBS shares down as much as 5.6 percent to $50.80, their worst intraday decline in more than three months. Wall Street has generally opposed a CBS merger with Viacom.
Delaware Chancery Court Judge Andre Bouchard said that, as the controlling shareholder, Shari Redstone, has the right to take steps to protect that control.
"No precedent has been identified, however, in which the court has ever entertained, much less sanctioned, the type of request for relief that plaintiffs make here," Bouchard said.
“The court’s ruling today represents a vindication of National Amusements’ right to protect its interests," NAI said in a statement. "As we intend to demonstrate as the case proceeds, the actions of CBS and its special committee amount to a grievous breach of fiduciary duties and show no regard for the significant risk posed to CBS and its investors.”
CBS said it plans to go ahead with a board meeting late Thursday to consider declaring a dividend of shares.
"Today’s ruling does not alter in any way the unyielding commitment of CBS and its Board of Directors to continue to act in and to protect the best interests of all CBS shareholders," CBS said in a statement.
Moonves had asked the judge to bar the Redstones from interfering with a CBS board meeting Thursday at 5 p.m. Eastern time to consider a plan that would wipe out her family’s grip on the broadcaster — a move that would enable the board to resist the merger with Viacom. Moonves’s proposal would dilute the Redstone’s family’s voting stake in CBS to 17 percent from 79 percent.
In a surprising move Wednesday, the Redstones forced CBS directors to change the company’s bylaws and require that 90 percent of the board approve the dilution proposal. That change allows Shari Redstone and a board ally to block the gambit if it came up for a vote Thursday.
Bouchard had granted CBS a temporary reprieve Wednesday when he ordered the Redstone family not to interfere with directors’ preparations to consider the dilution proposal while he weighed challenges to the plan.
The case is part of an unusual corporate fracas over two media properties that are not only controlled by the same company — NAI — but also were part of a single conglomerate until 2005. After more than a year of opposing National Amusements’ demands to pair up the businesses, Moonves and some CBS directors dared to take on the Redstone family.
Shari Redstone, who took over as NAI’s overseer after health issues sidelined her billionaire father, opposed the split of the two companies. She’s seeking to weld them back together on her terms, with Viacom CEO Bob Bakish as the re-combined company’s second-in-command. Moonves prefers to keep his own people in charge.
“I was never a great proponent of the split of the two companies,” Shari Redstone said at a 2016 conference, according to Vanity Fair magazine. “The path each company took could have been different under different leadership and this is why a combination should be explored now.” Shari Redstone also sits on Viacom’s board.
A special committee of CBS’s board has rejected NAI’s merger proposals and directors filed suit as a defensive measure to stop Shari Redstone from deploying tactics her father used in 2016 to reassert control over Viacom when the board questioned the 93-year-old’s mental capabilities. He had Viacom CEO Philippe Dauman booted from the board along with four other directors to pave way for new management. The moves cleared the way for Shari Redstone to take a more prominent role on Viacom’s board.
CBS contends Shari Redstone threatened to similarly oust directors who backed the dividend plan and pushed to have her father’s lawyer, Robert Klieger, take his CBS board seat. Klieger has been “instructing management and other directors on Ms. Redstone’s/NAI’s wishes — including the desire to replace certain directors,” according to CBS’s court filings.
Shari Redstone has been lobbying to combine Viacom with CBS to give her companies greater heft in a consolidating market. NAI officials contend the companies’ board committees have reached a provisional agreement on economic terms of the proposed merger, and the dispute comes as rivals including 21st Century Fox Inc. and Time Warner Inc. have agreed to sell themselves to larger players.
Viacom’s value has plummeted in recent years due to the shrinking viewership of its cable networks. All TV companies are struggling from the migration of viewers to online services Netflix and YouTube. Viacom has suffered more than most given its reliance on young viewers, and its stumbles developing hit shows.
The case is CBS Corp. v. National Amusements Inc., No. 2018-0342, Delaware Chancery Court (Wilmington).
— With assistance by Christopher Yasiejko