CBS, Redstones Face Court Fight Over Control of Media Giant

(Bloomberg) -- It's now up to a Delaware judge to decide the future of CBS Corp., owner of the most popular TV network in the U.S.

CBS's board voted Thursday to strip National Amusement Inc. of its controlling stake in the company by diluting its share of voting power. But NAI -- a firm backed by the Redstone family -- contested the vote, stating that it had already changed the company's bylaws to prevent such a maneuver.

That means the move is invalid unless approved by the courts. Unable to resolve this tug of war on their own, the two sides will now ask a judge to decide who has control over CBS -- its board of directors or the Redstone family. The dispute mirrors a fight two years ago between NAI and the leadership of its other media company, Viacom Inc.

Two storied media giants hang in the balance. It was Shari Redstone's effort to merge Viacom and CBS, both controlled by NAI, that precipitated the dispute. Redstone has been advocating a merger for close to two years, a move CBS has resisted unless Chief Executive Officer Leslie Moonves has autonomy to run the combined companies.

CBS's board decided Sunday it didn't want to pursue a merger with Viacom, owner of MTV and Nickelodeon, and filed a suit Monday to pre-empt the Redstones from ousting CBS board members.

“The board of directors has taken this step because it believes it is in the best interests of all CBS stockholders, is necessary to protect stockholders' interests and would unlock significant stockholder value,” CBS said on Thursday.

Legal Win

But NAI quickly cried foul. The firm won a round midday Thursday when a Delaware judge denied CBS's bid to block Shari Redstone from interfering with Thursday's board meeting. CBS fears that Redstone will oust its board members in its push to merge with Viacom.

NAI has denied it has any plans to change the board. “Today's board vote, while couched as an effort to prevent such a transaction, was pure pretext,” the company said in a statement. “CBS management and the special committee cannot wish away the reality that CBS has a controlling shareholder.”

In the meantime, CBS has postponed its annual shareholder meeting, which had been slated for Friday.

A ruling by Delaware Chancery Court Judge Andre Bouchard may not end the corporate battle of the titans.

Bouchard, a veteran of cases involving the Redstones, will have to decide whether CBS directors can prove Shari Redstone violated her duties to other CBS shareholders through her maneuvers.

Overstepping Authority?

The judge also must analyze whether CBS directors have the authority under the media company's bylaws and charter to carry out the dilution plan that wipes out the Redstone family's voting control. The board said a majority voted on Thursday to push forward with the special dividend that would dilute the Redstones' voting power.

The Redstones say that -- as controlling shareholders -- they have authority to change the bylaws and charter to require approval of the dilution proposal by 90 percent of the board.

The decision as to what to comes next rests with Bouchard. It may take months to litigate the case in Delaware and likely will require require numerous court filings, hearings and testimony from senior executives.

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

To contact the reporters on this story: Lucas Shaw in Los Angeles at lshaw31@bloomberg.net, Jef Feeley in Wilmington, Delaware at jfeeley@bloomberg.net.

To contact the editors responsible for this story: Nick Turner at nturner7@bloomberg.net, Elizabeth Wollman