CBS CBS Corp

By Keach Hagey 

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 (August 10, 2018).

Sumner Redstone doesn't want his heirs to have an easy time selling off his family's controlling stakes in media companies Viacom Inc. and CBS Corp. And he put it in writing in his estate-planning documents.

The trust that will control Viacom and CBS when the 95-year-old media mogul dies or is deemed incapacitated places severe restrictions on the trustees' ability to sell the companies, according to a copy of the confidential trust reviewed by The Wall Street Journal.

The trust, details of which haven't been disclosed previously, prohibits the trustees from entering into any merger that would leave shareholders in National Amusements, Mr. Redstone's holding company, with less than 30% of the voting control of the resulting business.

The restriction could complicate efforts to sell CBS or Viacom, especially to large companies, in which case coming away with a substantial stake would be challenging.

That and other provisions of the trust may have significant implications for CBS and Viacom investors, particularly at a moment when the media industry is awash in deals and both companies are considered potential takeover targets.

Mr. Redstone's trust has emerged as a flashpoint in the legal battle playing out in Delaware Chancery Court between CBS and National Amusements over control of the television company.

CBS is pushing to dilute National Amusements from its nearly 80% voting stake currently to about a 20% stake by issuing a special dividend. National Amusements moved to block any special dividend by changing CBS's bylaws to require a 90% supermajority vote for such a change. The two sides have been going through court proceedings and a trial in the case is set for October.

At a court hearing Wednesday, CBS lawyer Joseph Allerhand said only a handful of people have laid eyes on the trust document.

"We believe there are terms of the trust that are fairly described as bombshells," Mr. Allerhand told the judge, without specifying what the provisions were. He added that the trust has "huge consequences to investors of this company."

He pointed to a specific section of the trust document, but didn't spell out in court its contents. The section deals with the restrictions on selling National Amusements or its assets after Mr. Redstone dies or is deemed incapacitated, according to the documents the Journal reviewed.

The section also spells out that Mr. Redstone has the "sole and exclusive power" to vote the stock in the trust during his lifetime.

The trust owns 80% of the voting stock of National Amusements, while Shari Redstone, his daughter, owns the remaining 20%. National Amusements, in turn, owns nearly 80% of the voting stock of CBS and Viacom.

National Amusements has said it decides how to vote the holding company's CBS and Viacom controlling stakes through a vote of its seven-member board, on which Mr. Redstone casts a single vote. However, Mr. Redstone has the right to replace all members of the board.

National Amusements' lawyer, Meredith Kotler, said in court Wednesday that CBS's interpretations of the trust provision were incorrect. "If they think that provision would preclude trustees after Mr. Redstone's lifetime from doing something, they're wrong about that, because the trustees can amend it," she said.

Mr. Allerhand was skeptical that National Amusements' concept of modifying the trust would work. And he linked the issue of the trust and its complications to the legal matter at hand in the Delaware case: CBS's push to dilute National Amusements from a nearly 80% voting stakeholder to about a 20% stake through a special dividend.

"If their supposed fix is not doable, then we may have come across actually the most compelling reason for the special dividend that could ever be articulated," Mr. Allerhand said.

Mr. Redstone, who in recent years has fallen into such ill health that he can no longer speak much beyond grunts, said as recently as 2012 to the Journal that his estate-planning documents barred his trust from selling his family's controlling interest in CBS or Viacom "unless they start doing terribly, which they will not."

Patrick Connor, a trust and estates lawyer at Husch Blackwell, said it is possible to amend a trust after the trust's creator dies through a variety of means, from asking a judge to amend it to setting up a new trust and putting the old assets into it.

"What used to be irrevocable trusts are much less irrevocable these days and easier to change," he said.

Ms. Redstone, who rose to become the de facto leader of National Amusements in a 2016 power struggle, has pushed for CBS and Viacom to merge as the first step in any reorganization. She says her goal is to give the companies greater scale in hopes of better competing amid a consolidating media industry. She pressed the companies to explore a combination in 2016, and again earlier this year, only to be met with resistance from CBS both times.

CBS has alleged in legal filings that Ms. Redstone resisted potential suitors for CBS. National Amusements has denied the allegations.

The scope of Mr. Redstone's power at National Amusements, and his ability to influence events in his deteriorated state, have become a bigger focus of the legal battle. Delaware Chancery Court Judge Andre Bouchard said Wednesday that the question of "who is calling the shots" at the holding company would have to be addressed in the case.

Mr. Allerhand said that this year, for the first time, National Amusements refused to confirm a provision in CBS's latest quarterly report to the Securities and Exchange Commission saying that National Amusements is controlled by Mr. Redstone. Ms. Kotler said National Amusements was simply trying to avoid being trapped by CBS into broad assertions.

Peg Brickley contributed to this article.

Write to Keach Hagey at keach.hagey@wsj.com

(END) Dow Jones Newswires

August 10, 2018 02:50 ET (06:50 GMT)

Copyright (c) 2018 Dow Jones & Company, Inc.