The 66-page complaint filed Tuesday by National Amusements Inc. (NAI) in Delaware Chancery Court seeks to block the CBS board’s effort to dilute NAI’s overwhelming voting control in the company. The complaint also challenges the legality of Moonves’ severance package, asserting that the rich pact was never reviewed by the full CBS board. The NAI lawsuit follows CBS’ stunning decision to file suit May 14 against its controlling shareholder, claiming that NAI’s agenda in pursuing a merger of CBS and Viacom was detrimental to the interests of other CBS shareholders.
“As NAI’s complaint makes clear there was no ‘threat’ or ‘interference,’ and indeed there was no action that could possibly warrant the CBS directors’ unprecedented, unjustified, and unlawful efforts to unilaterally dilute NAI’s voting rights,” NAI said in a statement. “Unlike CBS’ complaint, NAI’s complaint is based on actual facts. Those facts demonstrate that CBS’ allegations are false, and that the CBS board and special committee took their actions not in response to any genuine threat, but instead because Les Moonves has tired of having a controlling shareholder. While Les Moonves is an extremely capable television executive, neither he, nor the board acting at his behest, is entitled to strip NAI of its voting control.”
The NAI lawsuit offers a detailed narrative of the CBS-Viacom merger considerations during the past two years that are the crux of the conflict between CBS and its controlling shareholder. The complaint asserts that Redstone, who is vice chairman of CBS and Viacom and president of NAI, had decided just before CBS filed its lawsuit to back off the latest merger push in the face of opposition from the CBS special board committee assembled to consider the merger.
The complaint maintains that Moonves expressed his support for a merger with Viacom that would pave the way for a possible larger transaction involving the combined companies. Redstone told Moonves she would be willing to give up control of CBS and Viacom in a larger M&A scenario. The NAI complaint asserts that Moonves in late 2017 indicated to Redstone that he was ready for the “next chapter” of his career and that he would not “stand in the way” of a CBS-Viacom transaction in contrast to the prior merger discussions in 2016.
The NAI suit vehemently denies the claims in CBS suit that NAI intended to force through a CBS-Viacom merger and would replace members of the CBS board if they continued to oppose the transaction. The NAI suit accuses Moonves of giving the CBS board an “ultimatum” that he would quit unless they supported a long-shot legal gambit to approve a special stock dividend that would dilute NAI’s voting interests. At a special board meeting on May 17, the CBS board voted 11-3 to approve a dividend to stockholders that would have the effect of diluting NAI’s voting stake in the company from about 80% to about 20%. That action is on hold pending the lawsuits. On May 16, NAI implemented changes to CBS Corp.’s bylaws that would invalidate the dividend vote because it was not approved by a 90% majority of the board.
The CBS board members cited in the suit are the 11 members that are not affiliated with NAI: Moonves, Gary Countryman, Charles Gifford, Bruce Gordon, Linda Griego, Martha Minow, Joseph Califano, William Cohen, Leonard Goldberg, Arnold Kopelson, and Doug Morris.
NAI maintains it was blindsided by CBS’ legal action after being told on May 9 that the CBS board was going “pencils down” on merger discussions until after its May 18 annual shareholders meeting. That meeting was postponed at the May 17
“For their part, the Director Defendants improperly chose CBS’s CEO over its controlling stockholder. They apparently had no qualms about abdicating their fiduciary obligations in order to serve Mr. Moonves’s will, leaving it to this Court to protect NAI and CBS’s other Class A stockholders from the unlawful dilutive dividend and without pausing to consider the extraordinary injuries that would be inflicted not only upon NAI, but also upon CBS and all of its stockholders in the interim.”
CBS in a statement said the new complaint from NAI was “not unexpected.” The statement also asserted: “The amended complaint filed last week by CBS and its Special Committee details the ways in which NAI misused its power to the detriment of CBS shareholders, and was submitted after careful deliberation by all involved. We continue to believe firmly in our position.”
There’s no word yet from the Delaware court on the next step in the dueling lawsuits.
The NAI suit offers other details about behind-the-scenes maneuvers at CBS in recent years. Among the highlights:
In 2006, Moonves approached Shari Redstone’s father Sumner Redstone about the possibility of taking paying NAI a premium to take CBS private in a deal that would leave the company in his control. Moonves raised the subject with Shari Redstone again in 2015 but his proposal “led nowhere” both times.
In 2016, when Sumner Redstone was forced to step down as CBS chairman because of his failing health, Shari Redstone declined to exercise her right to become chairman, “knowing how important it was to Mr. Moonves that he assume that role.”
As with Moonves’ severance package, the suit questions the validity of a clause in the employment contract of CBS chief operating officer Joe Ianniello that calls for him to receive a payment of $60 million if he does not succeed Moonves as CEO. “That provision of Mr. Ianniello’s contract was not approved, or even discussed, by the full Board prior to the agreement being signed,” the complaint states.
The complaint sheds light on the alleged bullying of Shari Redstone at the hands of CBS director Gifford. NAI has said its only effort to remove a CBS board member was directed toward Gifford because of his actions toward Redstone on two occasions in 2016 and 2017. In once instance, Gifford is accused of “grabbing her face and directing her to listen to him,” according to the complaint. In a footnote, the complaint elaborates: “After hearing that Ms. Redstone was upset by his conduct, Mr. Gifford later told her that he meant no offense, and that was how he treats his daughters when he wants their attention. Ms. Redstone clarified that she was not Mr. Gifford’s daughter but instead the Vice Chair of CBS.”
The complaint details the back-and-forth between Moonves and Redstone over the issue of a post-merger role for Viacom CEO Bob Bakish, painting Moonves as insecure. The issue of management and board composition was a major sticking point in the discussions between the special committees. CBS pushed for Moonves and his existing CBS team to run the combined company with no senior role for Bakish. “Mr. Moonves repeatedly bemoaned that Ms. Redstone liked Mr. Bakish more than him, and Ms. Redstone had to repeatedly assure Mr. Moonves that was not the case, that she actually had a closer personal relationship with Mr. Moonves than Mr. Bakish, and that she wanted Mr. Moonves to run the combined company,” according to the NAI complaint.
Read the full complaint here: