Nonvoting shares cause gripe

NEW YORK — CBS and Viacom stockholders Wednesday overwhelmingly approved their companies’ planned merger despite griping by some CBS holders at terms of the deal, all previously announced, that will leave them with a 55% equity stake in the new combined entity, but only through nonvoting stock.

“Why do I get nonvoting shares of Viacom?” demanded one stockholder, with his question echoed by a string of others at meeting called to approve the deal.

Viacom agreed to buy CBS in early September for about $37 billion. The CBS franchise and brand will remain, but CBS stock will disappear, exchanged for shares of Viacom’s so-called Class B, nonvoting stock. Nearly 70% of Viacom’s Class A voting shares are owned by company chairman-CEO Sumner Redstone.

CBS CEO Mel Karmazin frankly acknowledged that nonvoting stock is a “disadvantage.” But, he added, “It was a condition of the merger, and we felt that in the long term, it was the best thing to do for shareholders.” He told a packed house at the Manhattan Sheraton that CBS “would have liked to acquire Viacom. Those were the first discussions. But that transaction was not possible. They were not interested. So we had a choice either doing a deal on those terms or not doing a deal at all.”

He urged CBS shareholders to exercise their right to vote Wednesday — while they still had it. “That’s why we’re here,” he said.

The meeting, however, was more an official forum to rubber-stamp the merger, which is expected to close in March or April. A majority of CBS holders had already mailed in their ballots, with most in favor of the merger that was officially approved by 98.7% of stockholders. Karmazin, naturally, voted his 11 million CBS shares in favor of the deal and, furthermore, said he had agreed not to sell them for about three years starting last Sept. 6 — the day the merger was announced — providing the deal goes through.

Shareholders like deal

He noted that the share prices of both companies have risen sharply since the merger was announced — a clear sign that investors like the deal with or without voting stock. And he again ticked off the advantages of the combination: a huge advertising platform, complementary assets, international reach and synergies like those envisioned between CBS’ rock radio stations and Viacom’s MTV.

In an unusual sight at such a meeting, admiring CBS shareholders crowded Karmazin at the close to request his autograph on their copies of the prospectus — an SEC document that sets out the merger plans.

As for Viacom, shareholders approved the transaction by 99.7% by written consent — no meeting needed. That includes 68% voted by Redstone’s holding company, National Amusements. Fund manager Mario Gabelli also owns a hefty 10% chunk of Viacom Class A stock.

The merger agreement gives Karmazin direct control of the new Viacom’s day-to-day operations as chief operating officer. He will report to Redstone, who will continue as chairman-CEO. For three years — the duration of Karmazin’s contract — he cannot be fired or have his decisions overturned without the assent of 14 members of an 18-member board. Ten directors will hail from Viacom, eight from CBS.

Stock split and leadership

Karmazin talked of share repurchases, the possible stock split once the merger closed, and of the companies’ combined leadership.

“I hope Sumner Redstone will continue to be CEO of the combined companies for the foreseeable future,” he said. Shareholders, as well as Wall Street, industry players and the press, are wondering just how the current rapport between the two strong-headed execs will hold up once their deal is consummated.

One CBS shareholder worried that Redstone’s “messy” divorce could negatively affect the company. Karmazin repeated a statement previously issued by Redstone that his divorce from Phyllis Redstone, his wife of more than 50 years, will have no adverse effect on Viacom. She filed for divorce in late September and, according to some reports, is seeking $3 billion.

Karmazin also said federal regulators continue to examine issues raised by the merger, such as Viacom’s 50% stake in broadcast network UPN as well as the combined companies’ 41% national television coverage — above the current national cap of 35%. Unless the cap is raised, the merger could result in station sales, although Karmazin and Redstone have asked for two years to resolve any regulatory issues.

Meanwhile, the combined company has the unprecedented possibility of duopoly — or owning two TV stations — in six major markets: Philadelphia, Boston, Detroit, Pittsburgh and Miami. Last August, the FCC agreed to allow duopoly under certain conditions.

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