A judge is expected to decide Wednesday whether CBS can move forward with a rare corporate maneuver to strip Sumner Redstone and his family of their control over the company, which would thwart the Redstones' effort to merge CBS with Viacom.
CBS sued the Redstone family Monday, alleging that the mogul's daughter, Shari Redstone, was trying to railroad it into merging with Viacom Inc. even if the tie-up would harm rank-and-file CBS shareholders.
The Redstones also control Viacom, which owns MTV, Comedy Central, BET and Nickelodeon. CBS does not want to be saddled with the troubles of the weaker Viacom. Shari Redstone, meanwhile, believes the two companies would be stronger together as traditional media compete with such technology giants as Facebook, Google, Netflix and Amazon.
The Redstones _ through their investment vehicle National Amusements Inc. _ filed a brief in the case late Tuesday, calling CBS' attempts to strip it of its voting control "egregiously overbroad and unjustified" and said the move would be "an unprecedented usurpation of a controlling stockholder's voting power."
CBS plans to hold a special board meeting Thursday to issue a dividend that would give voting power to CBS shareholders who currently lack that power. That would dilute the Redstones' control over the company's affairs. Instead of controlling the company, with nearly 80 percent of the vote, the family's voting stake would be reduced to 17 percent.
CBS said there is a provision in its charter that allows for such a dividend. It asked the judge to block the Redstones from making any changes to its board before Thursday's vote can take place and the vote's results can be put into effect.
The Redstones' National Amusements asked the judge, Chancellor Andre G. Bouchard, to deny CBS' request.
A hearing is scheduled for 2 p.m. Eastern time on Wednesday in the Court of Chancery of Delaware.
Although much of the wrangling has centered on CBS' opposition to the proposed Viacom merger, there are deeper issues of trust at play. CBS Chief Executive Leslie Moonves has bristled over media reports that Shari Redstone has been conducting a stealth campaign to find a replacement for him.
Moonves prides himself on his successful 12-year run managing the broadcasting company with little management oversight from the Redstones. But that changed in the last two years as the family patriarch, Sumner Redstone, who turns 95 next week, became ill and Shari Redstone began taking a more active role in Viacom and CBS.
Legal experts have called CBS' gambit to dilute the Redstones' power the "nuclear option." The Redstone family told the judge that such a severe remedy was not warranted, saying there was no clear evidence that Shari Redstone planned to make changes to the board.
In its Tuesday brief, National Amusements called CBS' effort "extraordinary both in scope and finality in response to unsupported allegations."
"Specifically, (CBS) suggests that NAI intends to force such a merger by removing and replacing the CBS independent directors," lawyers for National Amusements wrote in the brief. "There is no truth to that. NAI does not have, and has never had, any intention of replacing the CBS board or taking other action to force a merger."
According to National Amusements, CBS has overreacted based on "unsourced media reports," that have cited knowledgeable people who have said that Shari Redstone was prepared to replace CBS board members with ones that were aligned with her views.
CBS, in a response filed Wednesday morning, said it "was not seeing ghosts."
"Five independent directors of undisputed renown _ former CEOs and senior business executives along with the former dean of Harvard Law School _ determined that (Shari Redstone) was such a serious threat to the corporation and all its stockholders that their fiduciary duties required action," CBS said in its court papers.
Shari Redstone already has one close ally on the CBS board: Robert Klieger, a Los Angeles attorney, who served as Sumner Redstone's personal lawyer when the patriarch was sued by a former female companion. Klieger successfully represented Sumner Redstone in that fraught 2016 court case when the former companion, Manuela Herzer, tried to get Sumner Redstone declared mentally incapacitated. In 2017, Klieger joined the CBS board.
Last Friday, Klieger approached another board member, Bruce Gordon, and said National Amusements wanted a third board member, Charles Gifford, removed from the board before CBS' annual shareholders meeting Friday. In its brief, National Amusements said it had concerns with Gifford that stemmed from unspecified "incidents" that occurred in 2016 and 2017. (Gifford, 75, is a former Boston banker who has served as chairman emeritus of Bank of America Corp. since 2005.)
Earlier this week, National Amusements said the board member, which it now revealed as Gifford, had engaged in "bullying and intimidation."
CBS defended Gifford on Wednesday, saying in a statement that he has "always conducted himself with courtesy, integrity and staunch dedication to all of our shareholders."
"It is unfortunate and revealing that NAI has resorted to baseless personal attacks against a member of CBS' board," CBS said in its statement. "The allegations regarding him are not only vague and unsubstantiated, they are utterly inconsistent with our knowledge of him."
CBS noted that Shari Redstone had previously supported Gifford's involvement in an important CBS board committee. In addition, six weeks ago, National Amusements said in a regulatory filing that it planned to support the reelection of all current CBS board members, including Gifford.
The corporate wrangling comes just two years after National Amusements unilaterally made sweeping changes to Viacom's board _ moves that were announced via a fax that arrived in the office of Viacom's then-chief executive late one Friday in May 2016.
That dispute also wound up in a Delaware court, and Viacom Chief Executive Philippe Dauman eventually resigned. That helped clear the decks for Shari Redstone to install Bob Bakish as the new chief executive of Viacom.
Talks about a Viacom-CBS merger broke down over her push to have Bakish serve in an influential role at the combined company.
