Will CBS’s latest attempt to block Shari Redstone from forcing a merger with Viacom hold up?
CBS’s board voted on Thursday to dilute Shari Redstone’s controlling interest in the company, reducing it from 79 percent to 17 percent. But the move might be in vain, according to Charles Whitehead, professor of law at Cornell University, because it disregarded Redstone’s change to the company’s bylaws earlier in the week, which require 90 percent of the board’s approval for any motion to carry.
The ordeal will soon head back to court — where CBS’s dilution strategy likely won’t stick.
“[Redstone’s] permitted to exercise her voting rights being given,” Whitehead told TheWrap. “This is not something the board should be stepping in and blocking. You have to accept that I, as a shareholder, have the ability to do this. It doesn’t say I have the ability to do this only if you the board want me to do this.”
CBS “jumped the gun,” according to Whitehead, by trying to block Redstone’s meddling right now. Instead, this should have been a two-step process: Redstone changes the bylaws and pushes for a merger, followed by CBS shareholders arguing it isn’t the best deal they can get.
“If she does this terrible thing [forces a merger], you can sue. But she hasn’t done the terrible thing yet,” continued Whitehead. “Wait until she actually does the terrible thing.”
For those that haven’t been following the saga: for two years, Redstone has been pushing the network to once again combine with Viacom — something CBS CEO Les Moonves has staunchly opposed. CBS’s vote on Thursday essentially ignored Redstone’s amendment to its bylaws earlier in the week, which she believed made it virtually impossible to dilute her controlling interest.
CBS only grabbed 78.5 percent of the vote — 11 out of 14 board members — before diluting Redstone’s interest on Thursday. This puts the share dilution on unstable ground when the matter returns to court.
For now, CBS’s best argument in court is that it stopped Redstone from doing irreparable harm to shareholders. CBS said on Thursday its maneuver was in the “best interest of all CBS stockholders,” and “necessary to protect stockholders’ interests and would unlock significant stockholder value.”
Others seem to share this belief. Needham analysts Laura Martin and Dan Medina said CBS, currently trading at $51.75 a share, could grab $70 a share from major telecom companies like Verizon. But it’ll be a tall task for CBS to show that Redstone violated her fiduciary responsibility by amending the bylaws — putting CBS’s stock dilution in peril.
“The remedy here is not for the board to ignore Redstone. The remedy is for the aggrieved shareholders to come back later and say the terms of what she’s offering are inconsistent with her obligation,” said Whitehead. “The breach of fiduciary duty isn’t the exercise of voting rights. The breach of fiduciary duty is “‘the the price is too low.'”