CBS crisis comes to a head as Moonves and Redstone fight for network's future

Posted May 17, 2018 10:16 a.m. EDT

— Thursday is a pivotal day in the fight for the future of CBS Corporation.

CBS, led by Les Moonves, is trying to wrest power away from Shari Redstone, the controlling shareholder of the company.

The CBS board is scheduled to hold a special meeting Thursday afternoon and vote on a dividend that would dilute Redstone's voting stake.

But first a judge in Delaware Chancery Court has to weigh in.

Members of the CBS board filed a lawsuit against Redstone and her holding company, National Amusements, on Monday. The board members said they were seeking a temporary restraining order to stop Redstone "from interfering" in Thursday's vote.

In the suit, the five board members said they "unanimously believe that the CBS Board has a fiduciary duty to act now to protect all stockholders and prevent Ms. Redstone from further breaches of her fiduciary duties."

National Amusements responded by calling the CBS moves "an unprecedented usurpation of a controlling stockholder's voting power."

Judge Andre Bouchard heard arguments from both sides on Wednesday, then put a brief pause on the corporate tug of war.

He issued a temporary restraining order and said he would issue a ruling before Thursday's board meeting.

"I have never seen anything quite like what transpired here, in terms of moving parts before a TRO hearing," Bouchard said.

Bouchard seemed to be referencing Redstone's last-minute move to throw a wrench in the CBS plan. Shortly before Wednesday's hearing, she changed the CBS bylaws to require a supermajority vote on matters like this.

If a supermajority vote is required, the dividend proposal would almost certainly fall short.

But the judge's ruling on Thursday may nullify Redstone's recent action.

The ruling is expected in the coming hours.

It's hard to see the two sides coming to a compromise. Either CBS will win, and Moonves will gain more autonomy over the company he has led for 20 years, or Redstone will win, and Moonves will be replaced.

The results of this so-called "nuclear option" could have consequences for other companies with dual-class stock structures.

CBS's attempt to break free has the support of many Wall Street analysts and key executives. There has been widespread concern about Redstone's push to merge CBS with National Amusements' other company, Viacom. CBS is seen as the stronger of the two firms.

But Redstone's camp says she has no intent to "force" a merger.

Amid all this, Moonves received an unusual standing ovation at the annual CBS "upfront" presentation for advertisers on Wednesday.

"So... how's your week been?" Moonves joked.

People on Team Moonves say this week's maneuverings are a smart power play on his part and the CBS board's part.

They portray the board as fighting for its freedom and the future of CBS.

Moonves "knows CBS and Wall Street are with him," an insider remarked on condition of anonymity.

People on Team Redstone say that's irrelevant because Redstone is well within her legal rights.

Redstone "had the legal right to change bylaws," BTIG analyst Rich Greenfield said.

Greenfield remarked that Moonves "wants to be an owner, not an employee... so he should go start a company he owns."