CBS Directors Had Prior Talks on Contesting Redstone Control

(Bloomberg) -- Even before their current scrap over a possible merger with Viacom Inc., CBS Corp. executives and some directors discussed deploying a stock-dilution plan to wrest control of the media company from billionaire Sumner Redstone and his family, according to court filings.

Some board members discussed the special dividend, designed to dilute the Redstones' controlling interest, with Martin Lipton, the board's veteran corporate lawyer, “any number of times over the years,'' according to a Delaware Chancery Court filing.

The filing indicates the clash between Les Moonves, CBS's chief executive officer, and Shari Redstone, president of the controlling shareholder National Amusements Inc., over the fate of America's No. 1 prime-time TV network has been brewing for years. The Redstone family owns controlling interests in both CBS and Viacom.

“I think this board was seeing a potential threat and trying to anticipate ways to respond,'' Larry Hamermesh, a Widener University law professor who is an expert in Delaware's corporate statutes. “They were being on guard and that's part of their jobs as directors.''

A trial is set for Oct. 3 in Wilmington, Delaware, over whether the CBS board had the power to approve the dilution plan, which reduced the Redstones' voting control of the media company to 17 percent from 79 percent.

Bylaws Change

Chancery Judge Andre Bouchard also must decide if the Redstones properly countered the board's move by changing CBS bylaws to require 90 percent of directors to approve the stock-dilution plan. Shari Redstone, Sumner's daughter, and her allies on the board could block the move under that change.

Dana McClintock, a CBS spokesman, and Sara Evans, a spokeswoman for NAI, declined to comment.

The directors claim they were forced to adopt the dilution plan as a defensive measure against Shari Redstone's campaign to impose the merger with Viacom on her terms. Board members said she'd been threatening to oust some colleagues and change the company's bylaws, according to court filings. Independent directors of CBS and Viacom, who have been considering a merger since February, haven't been able to agree on a deal.

The sealed filing was made by the Redstones July 10 and came as part of a dispute over which internal documents can be used at the trial. It indicates that Lipton, a partner at Wachtell Lipton Rosen & Katz, discussed the plan with “CBS management or subsets of the CBS board'' -- if not the full board -- and gave advice on it “any number of times over the years.''

Lipton didn't immediately return an email seeking comment.

Joseph Califano, a former cabinet member in the Kennedy and Johnson administrations who serves as a CBS director, was one of the directors who consulted with Lipton on the dilution plan, according to the filing. Califano was questioned in a pretrial deposition about those discussions, but his response was blacked out in the filing.

Moonves also was questioned about his discussions on the plan, but he refused to answer, citing attorney-client privilege, according to the filing.

The case is CBS v. National Amusements Inc., No. 2018-0342, Delaware Chancery Court (Wilmington).

To contact the reporter on this story: Jef Feeley in Wilmington, Delaware at jfeeley@bloomberg.net

To contact the editor responsible for this story: David Glovin at dglovin@bloomberg.net

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