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Future of CBS in limbo as parent company seeks to block independence vote

CBS surprised the media industry on Monday with a lawsuit against National Amusements as it seeks to prevent a forced merger with Viacom
Image: A trader works below the CBS Corporation logo on the floor of the New York Stock Exchange
A trader works below the CBS Corporation logo on the floor of the New York Stock Exchange in New York on May 14, 2018.Lucas Jackson / Reuters

The saga between CBS and its parent company, National Amusements, added another chapter on Wednesday, with National Amusements filing a legal motion in an attempt to maintain control of CBS.

CBS surprised the media industry on Monday with a lawsuit claiming that National Amusements had breached its fiduciary duty by pushing for a merger with Viacom, the other major media company owned by National Amusements.

CBS announced that it would seek to become an independent company by diluting the stock of National Amusements, a move that CBS claims is allowed through the network's charter. CBS filed a temporary restraining order against National Amusements and its president, Shari Redstone, to prevent its board from being replaced ahead the move.

National Amusements, in response, filed a brief in Delaware Chancery Court on Wednesday seeking to block the restraining order. The CBS board is scheduled to vote on Thursday to dilute the holdings of National Amusements.

"This is an unprecedented usurpation of a controlling stockholder’s voting power," the brief states.

In a further attempt to stop the CBS vote, National Amusements on Wednesday afternoon said it was amending the CBS rules governing the issuance of dividends of stock.

The new rules now require a "supermajority" vote from the CBS board. That means Shari Redstone, president of National Amusements and a member of the CBS board, could alone vote to block the proposed dilution.

Lawyers for National Amusements, or NAI, denied in the lawsuit that the company sought to replace the board of CBS in order to push through a merger of CBS and Viacom.

"NAI does not have, and has never had, any intention of replacing the CBS Board or taking other action to force a merger," the lawsuit stated.

The lawsuit also claims that the plan proposed by CBS could trigger a massive payout to CBS chief executive Leslie Moonves, which the lawsuit says could be more than $150 million.

National Amusements said in the brief that it offered to agree not to remove directors if the CBS board would postpone meeting to approve the dilution of National Amusements' ownership.

National Amusements' lawsuit points out there was already a provisional merger agreement between CBS and Viacom. The agreement foundered on negotiations for Viacom's chief executive Bob Bakish to join the newly merged entity.

"The remaining point was whether or not the chief executive officer of Viacom would have a role as a director in the combined company," the lawsuit stated.