Sumner and Shari Redstone are heading back to court, but this time find themselves on the same side of the aisle
CBS Corporation filed a lawsuit in Delaware Chancery Court on Monday accusing chairman emeritus Sumner Redstone and his daughter, majority shareholder Shari Redstone, of 'breaching their fiduciary duties' to stockholders.
The complaint states that the Redstones and their company National Amusements are planning to use their power as 'controlling stockholder' to approve a merger of Viacom and CBS just days after it was unanimously rejected by members of a Special Committee of the corporation's Board of Directors.
National Amusements has only a 10.3 percent economic stake in CBS, but they control a staggering 79.6 percent of the corporation's voting power.
This is due to the fact that CBS has two classes of stock that are publicly traded, and only those with Class A holdings have voting power while those with Class B have no formal authority.
The complaint also accuses Shari of previously using her power to dissuade one CEO from entering their company into merger talks with CBS, filling open board seats with acolytes and carrying out talks which contributed to the approximately $7 billion in market cap that has been lost by Class B stock holders over the past year.
'National Amusements (NAI) is outraged by the action taken by CBS and strongly refutes its characterization of recent events,' a spokesperson for the company said in a statement to DailyMail.com.
'NAI had absolutely no intention of replacing the CBS board or forcing a deal that was not supported by both companies. NAI’s conduct throughout supports this, and reflects its commitment to a well-governed process.'
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Courting: Sumner Redstone and his daughter Shari (above in 2012) are being sued by CBS Corporation for trying to push through a merger with Viacom that was rejected by the board
Peaks and valleys: 'CBS’ stock price has dropped to nearly $50 per share since merger talks were reinstated — a loss of approximately $7 billion in market cap,' states the filing (chart showing CBS stock over the past year)
'CBS’s management team, led by Leslie Moonves (CEO and Chairman), is one of the most accomplished and successful in the media business,' states the complaint.
'In a demanding and rapidly changing marketplace, the Moonves-led team articulated a strategic plan, executed on that plan and consistently delivered superior results. Nevertheless, Ms. Redstone has acted to undermine the management team, including, without board authority, talking to potential CEO replacements, deriding the Chief Operating Officer and threatening to change the Board.'
It is then noted that Shari's 'escalating attacks make it difficult for management to perform its duties and threatens continuity of management.'
Lawyers for CBS reveal in the filing that the board of directors is now planning to hold an emergency meeting on Thursday to discuss ways to dilute National Amusement's voting power moving forward.
The lawyers have also requested a temporary restraining order to keep Shari and her father out of meetings and 'from abusing voting control and further harming CBS and its public stockholders.'
The committee is comprised five individuals who are independent from the company and board: chairman Bruce S. Gordon, Gary L. Countryman, Charles K. Gifford,Linda M. Griego, and Martha L. Minow.
'The Special Committee believes that the Company and its public stockholders face a serious threat of imminent, irreparable harm in Ms. Redstone’s potential response to the Special Committee’s unanimous decision yesterday, May 13, 2018, that the proposed Viacom transaction is not in the best interests of CBS stockholders,' states the filing.
SUMNER AND SHARI REDSTONE RESPOND TO CBS LAWSUIT
'National Amusements (NAI) is outraged by the action taken by CBS and strongly refutes its characterization of recent events. NAI had absolutely no intention of replacing the CBS board or forcing a deal that was not supported by both companies. NAI’s conduct throughout supports this, and reflects its commitment to a well-governed process.
'CBS itself expressed support for the strategic merits of a combination with Viacom, and it is our understanding that both Special Committees had reached a provisional agreement on economic terms. NAI believes CBS’s action today was precipitated following NAI raising specific concerns about incidents of bullying and intimidation in relation to one CBS director, dating back to 2016. NAI has made every effort to deal with this matter privately and confidentially. Unfortunately, CBS’s action today continues to enable and empower such conduct.
'Ensuring the long-term success of CBS continues to be NAI’s sole interest. This precipitous lawsuit, and the efforts of CBS management and its “independent” directors to wrest voting control from NAI, are outrageous. We intend to defend our position vigorously and look forward to presenting our arguments in court.'
-Spokesperson for National Amusements
It then lists a number of ways that Shari has allegedly abused her power to undermine the board and hijack control for herself and National Amusements.
'Ms. Redstone interfered with the CBS Board nomination process and installed on the Board the Redstones’ personal lawyer, who has sought to implement her directives,' states one.
'Ms. Redstone has acted to undermine CBS’s highly lauded and successful management team in a series of escalating attacks, including by talking to potential CEO replacements without Board approval and deriding executives,,' declares another.
The filing later states: 'Ms. Redstone reportedly expressed her willingness to replace CBS directors to compel a merger with Viacom regardless of the Special Committee’s process, deliberations, and conclusion.'
Shari's actions have already cost the company billions according to the filing.
'This behavior and the uncertainty and negative public attention it has engendered have harmed CBS and its stockholders and will continue to do so,' states the complaint.
'CBS’s stock price has dropped from nearly $70 per share to nearly $50 per share since merger talks were reinstated — a loss of approximately $7 billion in market cap suffered by the Class B stockholders.'
This financial tumble occurred 'despite management consistently delivering excellent results' according to court papers.
In order to save the company an stockholders, the board is now taking action.
The process of diluting the control of National Amusements and thus both Redstones was also addressed in a release sent out by CBS on Monday.
'The dividend, if issued, would dilute National Amusements, Inc.’s voting interest from approximately 79% to 17%. The dividend would not dilute the economic interests of any CBS stockholder,' states the release.
'The Special Committee 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.'
It goes on to explain: 'If consummated, the dividend would enable the Company to operate as an independent, non-controlled company and more fully evaluate strategic alternatives.'
Et tu, Shari: Shari's actions do appear to fly in the face of her father, who very publicly stated his commitment to CBS being an independent corporation when he was at the helm (Shari chatting with CBS head Les Moonves and Michael Eisner at Allen & Co in 2016)
Here we are now, entertain us: Redstone above on left with Courtney Love and Kurt Cobain at the MTV Video Music Awards in 1993
Shari's actions do appear to fly in the face of her father, who very publicly stated his commitment to CBS being an independent corporation when he was at the helm.
'CBS’s Special Committee believes that it is only a matter of time before Ms. Redstone will attempt to replace the independent directors at CBS who do not agree with her positions, just as she and NAI did at Viacom two years ago, in order to block the CBS Board from considering appropriate corporate strategies for CBS that would be in the best interests of all CBS shareholders - not just NAI,' reads the complaint.
'Plaintiffs are filing this complaint and accompanying motion for a temporary restraining order to prevent Ms. Redstone and NAI from attempting to replace the Board or modify the Company’s governance documents before any Board action taken at the Special Board Meeting becomes effective.'
Sumner, 94, is currently the Chairman Emeritus of CBS, a position he was given after stepped down from his role as Executive Chairman back in February 2016.
He is still the CEO and Chairman of the Board for National Amusements, and the complaint does note: 'Mr. Redstone has been named as a defendant to ensure appropriate relief.'
It was Sumner's decision to split his media holdings a little over a decade ago which lead to Viacom and CBS being independent operators.
He then had a change of heart it seems and in 2016, he spent his final weeks trying to find a company or corporation willing to merge with CBS and thus allow them to compete with companies like Amazon and Netlfix.
Shari has made no secret of her desire to join Viacom and CBS since taking over for her ailing father.
It is only Viacom she is interested in however according to the complaint.
'Ms. Redstone has also made clear that she will not entertain any third-party offers for control of CBS, even if they offer a high premium to CBS’s stock price,' reads the filing.