Inside CBS CEO Les Moonves’ ‘Nuclear Option’ Court Battle Today With Shari Redstone

CBS could be jockeying for leverage to bring Redstone to the negotiating table, experts say

Last Updated: May 16, 2018 @ 7:34 AM

The showdown between CBS CEO Les Moonves and Shari Redstone, whose National Amusements has a controlling stake in the media giant, heats up on Wednesday


as both sides’ lawyers head into a Delaware courtroom.

The high-stakes hearing could determine who controls the company and whether CBS’ board has the authority to reject Redstone’s push for a merger with National Amusements’ other media giant, Viacom.

The feud between the two sides heated up this week when CBS and its independent board members filed a lawsuit seeking to restrain NAI from interference in its operations — including a planned special meeting of the board on Thursday in which they have threatened to dilute NAI’s voting power from 79 percent to 17 percent.

“This is definitely not something you see everyday. It’s a nuclear option,” CFRA Research media analyst Tuna Amobi told TheWrap.”Who knows what private conversations have happened between Les and Shari, but it’s impossible to imagine there are constructive negotiations going on now.”

Amobi expects that the parties will try to expedite the proceedings, otherwise things could get ugly fast.

“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,” the company said in a complaint filed with the court on Monday.

For its part, NAI said in a court filing on Wednesday it has “absolutely no intention of replacing the CBS board or forcing a deal that was not supported by both companies.”

In a court filing on Wednesday, National Amusements said it tried to negotiate detente with CBS as long as it adjourned the board meeting on Thursday, but CBS rejected the offer.

NAI also noted that any efforts it takes to prevent dilution of it stake “might trigger the departure of (and payment of massive parachute payments to) key management and directors of the Company” — a clear reference to Moonves himself, who stands to earn a nine-figure exit fee should he leave the company before the scheduled end of his current contract in 2021.

It’s possible CBS is simply trying to gain leverage. Jill Fisch, a law professor at the University of Pennsylvania, told TheWrap that she wouldn’t just assume CBS’ suit will lead to a trial.

The point of filing for a temporary restraining order, Fisch said, is to have the court weigh in on the case early. Delaware Judge Andre Bouchard will give both parties a sense of how the case could play out, which would give CBS and Redstone’s National Amusements a chance to negotiate.

But there’s no legal precedent for a board of directors trying to use a charter provision to wrangle control of a company from a majority shareholder, Fisch said.

“Nobody has tried this before,” she told TheWrap. “From the language used in the charter, it’s not clear what kind of legal standard the court would even use to make a decision. It’s going to propose some tough questions for the court.”

The main questions facing the court right now are: Is the board within the scope of its rights, gifted by the charter, to consider offering a dividend to dilute Redstone’s power? And if the board is within its rights, would this course of action be permissible given the circumstances?

In its complaint filed with the court, CBS argues that the pressure Redstone has put on CBS to merge with Viacom, and the uncertainty surrounding the company as a result, has hurt CBS and its stockholders.

“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,” CBS said in its complaint. “This loss of market value has occurred despite management consistently delivering excellent results.”

In a statement following CBS’s filing, National Amusements called the move “outrageous,” and said it plans to “vigorously” defend its position in court.