Judge Hits Pause on Merger Battle Between CBS and Its Parent Company

When he took the stage at Carnegie Hall during CBS’ annual presentation to advertisers Wednesday, Stephen Colbert did not shy away from the topic on the minds of everyone in the audience.

“Of course, this year, CBS has the most exciting legal dramas,” he said. “Also — some great TV shows.”

Not long before the host of CBS’ “The Late Show With Stephen Colbert” appeared onstage, a court chancellor in Delaware offered a ruling on the legal battle between the network and its corporate parent, National Amusements, one that has ensnared the longtime CBS chief executive, Leslie Moonves, and his boss, Shari Redstone, the daughter of the ailing 94-year-old entertainment mogul Sumner Redstone.

But if executives at CBS and National Amusements believed they would come away from the hastily called hearing with clear answers on which party was in the right, they were sadly mistaken.

The Delaware judge effectively declared a cease-fire in the war between the network and its controlling shareholder, Shari Redstone. The ruling from the bench — in effect, the judicial version of buying time — followed a flurry of legal volleys by each side concerning the fate of CBS, which Redstone hopes to merge with its fellow National Amusements media company, Viacom.

CBS had been resisting the attempt by Redstone to orchestrate the merger. But what had been a cold war started to burn hot Monday, when a lawyer representing the network and its key board members filed a lawsuit against National Amusements and Redstone, seeking a temporary restraining order to prevent her from interfering with a special meeting of the CBS board scheduled for Thursday.

The board planned to vote on a special stock dividend that would drastically water down the Redstone family’s voting stake at CBS to 17 percent from 79 percent — a move that would give Moonves more freedom to reject a merger with Viacom. In its lawsuit, CBS claimed that Redstone would seek to prevent the meeting and perhaps even replace the members of the board with her allies — something Redstone, the vice chairwoman of CBS, has denied.

“NAI does not have, and has never had, any intention of replacing the CBS board or taking other action to force a merger,” lawyers for National Amusements said in a filing Wednesday.

Chancellor Andre G. Bouchard of Delaware’s Court of Chancery put a temporary halt to the legal wrangling in his decision. Technically, he granted CBS’ request for the temporary restraining order, but with modifications. The judge is expected to issue a more expansive ruling Thursday concerning whether the result of the CBS board’s planned vote will be allowed to go into effect.

Less than an hour before the hearing, Redstone, 64, issued a change to the CBS bylaws that would grant her more control of the network’s board. That change, too, is now delayed: The judge said that he would issue his legal opinion on Redstone’s change to the bylaws in his decision Thursday. The hearing in Delaware took place on a day when CBS was making its annual presentation to advertisers at Carnegie Hall. Moonves was absent from a press breakfast in New York on Wednesday morning, during which the network unveiled its fall lineup. It was the first time in 22 years that he had been a no-show at the morning gathering of reporters and CBS executives.

“Leslie sends his regrets,” Kelly Kahl, president of CBS’ entertainment division, told the group of reporters.

Given the corporate intrigue surrounding the network, Kahl added that the number of questions he could not answer far exceeded the number of questions he could.

At 4:15 p.m., moments after the judge issued the decision to delay the legal battle, Moonves, 68, took the Carnegie Hall stage to huge roars from the advertisers, who were all too aware of the tensions between one of the industry’s most successful executives and his boss.

“Good afternoon, everybody,” Moonves began.

More roars rained down on the stage, before the ad buyers in the room rose from their seats in a standing ovation, a rarity at the annual upfront presentations.

Hands in his pockets, Moonves, who began his show business career as an actor in the 1970s, added, “So. How’s your week been?”

Big laughs followed.

“Anyway,” he added, “for years I’ve told you I’m only out here for a few minutes — and this year, perhaps for the first time, I actually mean it.”

The latest attempt by Redstone to merge CBS and Viacom started innocently enough, or so it seemed. On Feb. 1, the two companies jointly announced that they would “evaluate a potential combination,” reigniting talks that had fizzled a year earlier.

The plan seemed to make sense. In the past year, the Walt Disney Co. has agreed to buy most of Twenty-First Century Fox in a deal that would form an entertainment colossus for the age of streaming, and AT&T is pursuing an $85.4 billion acquisition of Time Warner. At the same time, traditional media companies are contending with technology companies like Apple and Facebook that have moved into the entertainment business. And CBS and Viacom had coexisted, in relative peace, as a united company within National Amusements from 2000 to 2006.

Cut to little more than three months later: CBS and National Amusements were tussling as lawyers working under the direction of their headstrong leaders filed motions against each other. With the legal decision that is expected to be issued Thursday, Redstone and Moonves are very likely to have a clearer idea of what the future holds for them and their companies.