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Directors vote against National Amusements, but both sides fail to agree on who won
By Keach Hagey and Joe Flint
This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (May 18, 2018).
CBS Corp. and its controlling shareholder National Amusements Inc. are so entrenched in a power struggle that they can't even agree on the outcome of a board vote.
On Thursday, CBS said its board voted to strip National Amusements President Shari Redstone and her family of their voting control over the media company.
CBS said the 11 of the 14 board members not affiliated with National Amusements supported the proposal.
But that tally fell short of the threshold the Redstones believe is required for approval after they moved to amend the company's rules on Wednesday.
The boardroom drama sets the stage for what could become a prolonged legal battle over governance of the media giant. At the heart of the fight is CBS's contention that Ms. Redstone is trying to force it to merge with Viacom Inc., the other media company in the family's empire. Ms. Redstone denies the assertion.
The battle could have significant ramifications for the broader media landscape, determining the leadership and ownership of the television powerhouse, and whether it will remain independent.
CBS said its directors approved a stock dividend that would dilute National Amusements' voting power from nearly 80% to about 20%.
Normally, such a proposal would require a simple majority vote. But National Amusements amended the company's bylaws on Wednesday to require 90% of board members to approve such a move.
That is the reason the two sides now have different interpretations of the outcome of the board meeting.
CBS said the dividend won't take effect until Delaware courts have determined it is permissible.
"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 in a statement in reference to the vote.
CBS also said it has postponed its annual meeting, which was scheduled for Friday.
In the wake of the vote, National Amusements said the board's plans to issue a dividend are invalid.
"CBS management and the special committee cannot wish away the reality that CBS has a controlling shareholder," National Amusements said in a statement.
"NAI [Wednesday] exercised its legal right to amend the company's bylaws to require a supermajority vote on certain board actions with respect to dividends, effective immediately. In light of the Board's action today, that action was plainly necessary, and it is valid."
Regardless of the outcome of the legal dispute, Thursday's vote count represented a remarkable rebellion of a company's board against its controlling shareholder.
The stakes are also high for CBS Chief Executive Leslie Moonves. If he loses, he would face the prospect of operating the company under Ms. Redstone's oversight after effectively going to war with her.
Ms. Redstone has been eager to reunite CBS and Viacom since 2016, when she assumed day-to-day control of National Amusements from her ailing father, Sumner Redstone.
Viacom has struggled in recent years as its two primary sources of revenue, distribution fees from pay-TV operators and advertising revenue, have been hurt by its underperforming cable networks including MTV and Nickelodeon.
Conversely, CBS, while weathering some challenges common across the TV landscape, has experienced significant growth in its pay-TV distribution fees and programming revenue over the past decade.
Ms. Redstone expects both companies to be stronger as a combined entity at the same time that other media outfits are consolidating. CBS is concerned that its leverage with the cable- and satellite-TV distributors that carry its channels will be hampered by adding the Viacom networks to its portfolio.
In 2016, CBS and Viacom tried unsuccessfully to reach an agreement on a deal and the issue was tabled. Earlier this year, Ms. Redstone brought the two back together for more negotiations.
NAI said the two sides came to an agreement on price, while CBS had denied that. But both sides agree that the deal stalled primarily over Ms. Redstone's desire for Viacom Chief Executive Robert Bakish to have a significant role after a merger. CBS balked at that as well as at the subsequent idea of a board seat for Mr. Bakish.
People close to Ms. Redstone indicated she was growing frustrated with what she saw as resistance from CBS and was considering making changes to the board. She took a similar approach at Viacom, when she overhauled the board of directors to force out Philippe Dauman as chairman and chief executive in 2016.
The media company and its special committee of independent directors filed a lawsuit in Delaware court this week against National Amusements and the Redstones to try to prevent them from replacing the board and forcing a merger with Viacom. National Amusements has denied that it was planning to take those actions.
As part of CBS's legal effort, the company requested a temporary restraining order.The judge denied CBS's request earlier Thursday, before the board vote.
Judge Andre Bouchard said legal precedent favored controlling shareholders' right to make pre-emptive moves to protect their power. The court also found CBS wouldn't face irreparable harm without a restraining order, because it has other avenues to pursue legal action if the Redstones remove directors improperly or try to force a deal with Viacom in a way that is detrimental to shareholders.
CBS shares fell 4% Thursday, while Viacom shares were roughly flat.
CBS said in a statement, "While we are disappointed that the judge did not grant a [temporary restraining order], the ruling clearly recognizes that we may bring further legal action to challenge any actions by NAI that we consider to be unlawful, and we will do so."
National Amusements said it was pleased by the court's ruling.
"The court's ruling today represents a vindication of National Amusements' right to protect its interests," it said in a statement. "As we intend to demonstrate as the case proceeds, the actions of CBS and its special committee amount to a grievous breach of fiduciary duties and show no regard for the significant risk posed to CBS and its investors."
Write to Keach Hagey at email@example.com and Joe Flint at firstname.lastname@example.org
(END) Dow Jones Newswires
May 18, 2018 02:47 ET (06:47 GMT)
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