CBS Sues Controlling Shareholder for Independence

CBS Corp. May 14 filed a lawsuit in Delaware Court of Chancery alleging breaches of fiduciary duty by majority shareholder National Amusements, which is run by Sumner Redstone and his daughter Shari Redstone.

CBS is seeking to prevent the Redstones from allegedly interfering with a special meeting of its board of directors to consider declaring a dividend of shares that would dilute the value of National Amusements’ voting rights to 17% from 80% — as is permitted under CBS’s charter.

The dividend would not dilute National Amusements’ economic interests, or any other CBS stockholder.

CBS said it took this step because it believes it is in the best interests of all its shareholders, and necessary to unlock significant stockholder value.

If consummated, the dividend would enable CBS to operate as an independent, non-controlled company and more fully evaluate strategic alternatives — including merging with Redstone-controlled Viacom.

CBS contends that without the litigation National Amusements would seek to oust its board members and/or change its bylaws — allegations National Amusements denies.

“National Amusements had absolutely no intention of replacing the CBS board or forcing a deal that was not supported by both companies,” the company said in a statement. “National Amusements’ conduct throughout supports this and reflects its commitment to a well-governed process.”

 

Viacom Asks CBS to Up Merger Bid

Media giant Viacom reportedly has asked CBS Corp. to increase its undisclosed merger bid by $2.8 billion. CBS previously offered an amount (reportedly $11.9 billion) below Viacom’s market capitalization value, according to CNBC, which cited sources familiar with the proceedings.

Viacom, which includes Paramount Pictures and Paramount Home Media Distribution, is majority owned by National Amusements – the corporate shell run by Sumner Redstone and his daughter Shari Redstone that controls Viacom and CBS.

Viacom spun off CBS in 2006 with Les Moonves assuming control of the publicly traded company.

With ongoing media consolidation industrywide, Shari Redstone seeks to consolidate the two companies, putting Moonves in charge. Redstone, however, wants Bob Bakish, current CEO of Viacom, to be president/COO of a combined Viacom/CBS, while Moonves prefers that position go to Joseph Ianiello, current COO at CBS.

Separately, CBS nominated Richard Parsons, the 70-year-old former CEO of Time Warner, to its board of directors. Parsons, who was replaced by Jeff Bewkes in 2008, was an earlier supporter of releasing movies digitally day-and-date with their packaged media debut – a move criticized at the time by video stores seeking exclusivity.

Parsons then enflamed the situation when, in a fiscal call, he said it would be a “cold day in hell” before leaving his Manhattan apartment to go to a video store. His comments came as Warner Home Video ranked #1 in domestic home video disc sales, with an industry-leading 20.2% market share.

 

CBS/Viacom Merger Caught Up in Management Roles

Ongoing talks regarding the possible merger of CBS Inc. and former corporate parent Viacom isn’t revolving around price or who would head both companies. That would be CBS CEO Les Moonves. Instead, the multibillion dollar deal is reportedly hung up by who would be Moonves’ second-in-command, among other management decisions.

CNBC reported that Moonves is eyeing CBS COO Joe Ianniello, while Shari Redstone, who controls majority shares of Viacom, wants Viacom CEO Bob Bakish assuming the role.

Moonves contends that if the Viacom board of directors wants him to lead the combined companies, he has the right to name his management team. Shari Redstone believes otherwise.

“[The acquisition price] is not actually going to be the key issue whether or not these talks succeed in reaching a deal,” said David Faber, host of CNBC’s “The Faber Report”.

Ianniello, who was recently promoted to the COO position from CFO, has been with CBS since the media company separated from Viacom in 2005. He typically backs up Moonves on fiscal calls.

Bakish, who replaced Philippe Dauman in 2016 as CEO of Viacom, formerly headed Viacom International Media Networks. He has been with the company since 1997.

“So, we are setting up, it would seem, for a potential debate and/or clash between Shari Redstone and Les Moonves about what the reporting structure in the new company will be,” Faber said.

Indeed, as controlling shareholder at Viacom (including Paramount Pictures), Redstone has the right to replace the board or even Moonves, according to Faber.

In addition, both Bakish and Ianniello have clauses in their employment contracts that call for significant financial compensation in the event of a change in ownership of either company. For Ianniello, that reportedly would be $70 million should he not get the No. 2 position in a combined CBS/Viacom.

Analysts contend cost synergies in the merger would range from $500 million to $750 million.

CBS Forms Viacom Merger Special Committee

CBS Feb. 1 announced that its board has established a special committee of independent directors to evaluate a potential merger with Viacom, which includes Paramount Pictures.

CBS said that despite forming a special committee there is no assurance that it would result in a transaction or on what terms any transaction might occur.

CBS and Viacom were previously legally together until 2006, when Sumner Redstone, founder and controlling shareholder of Viacom, declared that diversified media conglomerates were dinosaurs due to changing market conditions.

Fast-forward to the present and 94-year-old Redstone is still around – with an apparent polar opposite mindset.

His daughter, Shari Redstone, vice chairman of Viacom, is driving reconnecting with CBS, which is headed by Les Moonves. The rationale being that diversified consolidation is mandatory in an increasingly fragmented direct-to-consumer market.

CBS and Viacom are following M&A leads taken by AT&T and Time Warner, and Walt Disney and 20th Century Fox.