National Amusements has blasted CBS Corp.’s legal effort to dilute the company’s voting power in the company as “irresponsible” and “inexplicable” in legal filings with the Delaware Chancery Court, where CBS’ request for a temporary restraining order is expected to go before a judge this afternoon.
The filing from National Amusements Inc. (NAI) also revealed the name of the CBS board member accused on Monday of bullying behavior toward Shari Redstone, the CBS Corp. controlling shareholder and National Amusements president at the center of the battle for control of the company. The filing cited independent CBS director Charles Gifford for his involvement in “certain incidents” in 2016 and 2017 that made National Amusements uncomfortable with his continued service on the board.
CBS Corp. on Monday filed a lawsuit against NAI in an effort to blunt what it feared would be an effort by NAI to force a merger with Viacom, CBS’ former corporate sibling which is also controlled by NAI. NAI’s filing reiterates the company’s assertion that it had no intention of forcing the deal or replacing CBS board members in order to secure approval for the deal.
In its response, NAI calls CBS’ legal move “egregiously over-broad and unjustified” and an attempt to pull off “an unprecedented usurpation of a controlling stockholder’s voting power.”
NAI maintains that CBS’ fears are fueled by media reports and “conjecture.” It faults CBS for failing to take steps to negotiate a quiet truce rather than going to court. CBS has proposed that its board members vote Thursday on a proposal to issue a special stock dividend to shareholders that would have the effect of diluting NAI’s 79.6% voting stake in CBS Corp. to 17%, which would not be enough for NAI to exert the same level of influence it now enjoys over the CBS board.
“NAI had, and has, no intention of forcing a merger, whether by removing and replacing the members of the Special Committee or otherwise. Plaintiffs’ contrary belief appears to be based on unsourced media reports and conjecture,” a NAI lawyer wrote in a letter to CBS counsel that was included in NAI’s response filing. “Needless to say, filing suit on the basis of such reports is both improper and irresponsible. Moreover, it is inexplicable why, given the articulated concerns, plaintiffs believe it necessary or appropriate to seek to dilute NAI’s voting power for all purposes, now and forever, rather than simply enjoin a forced merger of the sort that the above-captioned action was ostensibly filed to prevent.”
Lawyers for CBS and NAI had tried during the past 48 hours to reach a standstill agreement to avoid the spectacle of the TRO hearing but they could not come to terms. NAI said in its filing it had offered “not to take action to interfere with the status quo (including, for the avoidance of doubt, the composition of the Board or any actions with respect to a proposed combination with Viacom)” in exchange for CBS agreeing to scrap the proposed board vote on the stock dividend and a delay of its annual shareholders meeting, which is scheduled for Friday.
The flurry of legal filings underscore the level of rancor between CBS chief Leslie Moonves and Redstone over the future of CBS. CBS issued a strong denial of allegations by NAI that CBS board member Gifford engaged in inappropriate behavior toward Redstone.
NAI’s filing included a declaration from another CBS board member, Robert Klieger, who is a personal attorney for the Redstones, noting NAI’s “discomfort” with Gifford continuing on the CBS board. Klieger’s declaration states that he raised the Gifford issue with CBS board member Bruce Gordon on May 11, three days before CBS launched its legal effort to dilute NAI’s voting power. Gordon is chairman of the CBS board special committee that has been evaluating the possible merger with Viacom. This past weekend, that committee, of which Gifford is a member, voted unanimously that a reunion with Viacom would not be in the best interest of CBS shareholders.
“It is unfortunate and revealing that NAI has resorted to baseless personal attacks against a member of the CBS Board and its Special Committee as part of its response to the CBS action,” CBS said in a statement. “The allegations regarding him are not only vague and unsubstantiated, they are utterly inconsistent with our knowledge of him. It is notable that during the very years of the alleged incidents mentioned, he was twice elected to the CBS Board, in both cases with Ms. Redstone’s support and blessing and without any reservation expressed to the Board or to its Nominating and Governance Committee. In fact, it was just six weeks ago that NAI, which she controls, expressed its intention in an SEC filing to reelect him. This public support was only fitting, because during his long service at CBS he has always conducted himself with courtesy, integrity and staunch dedication to all of our shareholders. He by no means deserves this disreputable attack, which is clearly tied to the execution of his duties in this matter.”
NAI’s filing notes that the CBS and Viacom special committees evaluating the merger proposal reached an agreement on April 24 on the economic terms under which CBS would acquire Viacom in an all-stock deal. CBS directors and Moonves had also balked at Viacom’s push for its current CEO, Bob Bakish, to be named No. 2 at the combined company to Moonves.
Sources close to the situation say Moonves had previously expressed to Redstone his desire to step down as CBS chairman-CEO within a few years, which is one reason why she sought to set up Bakish as his successor. Sources close to Moonves dispute this characterization of Moonves’ intention.
NAI in its response said CBS’ legal move could have the effect of forcing its hand and spur the departure of Moonves and other managers. It also notes that Moonves stands to reap a massive payout if he is forced out of his role as chairman-CEO amid the wrangling. Moonves’ parachute is estimated at $150 million to $280 million, depending on how his stock awards are calculated were he to depart.
“Plaintiffs have forced CBS’s controlling stockholder into a position of having to make a Hobson’s choice — of either accepting massive dilution of its voting power (thereby losing control of the Company and suffering the economic detriment to its stake that entails), or acting as a stockholder to prevent such dilution and protect its voting power, knowing that doing so might trigger the departure of (and payment of massive parachute payments to) key management and directors of the Company,” the NAI filing stated. “The Board unquestionably understands that a controlling stockholder would not willingly give up control uncompensated, and it is imprudent that the Board would put the management of a $20 billion company at risk in such a fashion.”
CBS, in its response to NAI’s filing, argued that the Delaware judge should grant the TRO and allow the Thursday board meeting to proceed because CBS has vowed to not take any immediate action even if the board votes to grant the special dividend. CBS has said it will wait until the judge, Chancellor Andre Bouchard, has a chance to weigh in on the merits of CBS’ suit accusing Redstone and NAI of breach of fiduciary duty.
“This is not just about the imprudent merger pushed by Ms. Redstone; these independent directors concluded the controller presented a significant threat to the corporation,” CBS’ response filing states. “Defendants are desperate to avoid a meeting where the full Board can consider that recommendation and a full record can be developed for this Court to consider any challenge.”