CBS Escalates Its Fight With Redstones

For Les Moonves and his team at CBS, Monday meant war against Shari Redstone and her desire to merge the media company with its corporate sibling, Viacom.

CBS sued its parent company, the Redstones’ National Amusements, in Delaware’s Court of Chancery to prevent Redstone from interfering with a meeting of a special board committee scheduled for Thursday.

Redstone’s father, the media mogul Sumner M. Redstone, took control of Viacom in 1987, through National Amusements, and then acquired CBS in 2000. Six years later Redstone split the two companies apart.

In recent years, the Redstones have pushed for CBS and Viacom to reunite. Earlier this year, the two firms said that their boards had created special committees of independent directors to “evaluate a potential combination.”

Negotiations between the two companies soon hit an impasse over both the price of a deal and who would run the combined company. CBS has wanted Leslie Moonves, its chief executive, to run the combined company and his chief operating officer, Joe Ianniello, to hold that position at the new firm. Viacom has pressed for its CEO, Bob Bakish, to hold that spot, and Shari Redstone had largely sided with Viacom.

On Sunday, CBS’ special committee determined that a deal with Viacom was not in “the best interests” of CBS’ shareholders.

CBS said it filed the lawsuit because it was worried Redstone would block a meeting of the special committee taking place Thursday. At the meeting, the committee is set to consider issuing a special dividend to all shareholders that would neutralize Redstone’s special voting powers. While National Amusements owns just over 10 percent of CBS’ overall shares, Redstone and her family effectively have just under 80 percent of the company’s voting power. The special dividend would lower Redstone’s voting interest to about 17 percent.

The lawsuit was pre-emptive, CBS said, because Redstone had considered replacing CBS’ board if it continued to resist a merger with Viacom. In a statement, National Amusements denied it had any “intention of replacing the CBS board or forcing a deal that was not supported by both companies.”

National Amusement also said that CBS and Viacom had even reached a provisional agreement on valuation. Viacom’s investors would receive 0.6135 CBS shares for each Viacom share they own, according to a person familiar with the matter who was not authorized to discuss the negotiations. The valuation marked a compromise for both sides and is a sign that CBS had previously supported exploring a merger of the two companies.

But in the lawsuit, CBS accused Redstone of presenting “a significant threat of irreparable and irreversible harm to the company and its stockholders,” and that the board believes it is acting in its fiduciary duty to all of its shareholders, not just Redstone.

CBS asserted in its lawsuit that “Ms. Redstone told the CEO of a potential acquirer of CBS that he should not make such an offer, thereby depriving CBS stockholders of a potentially value-enhancing opportunity that the board or the special committee should have been free to evaluate.” That chief executive was Lowell C. McAdam of Verizon, according to people familiar with the discussions but not authorized to speak publicly.