Redstone v. Moonves: National Amusements Adds New Details of CBS Feud in Lawsuit

Shari Redstone Les Moonves - Split - H - 2016
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Shari Redstone earlier pitched Les Moonves on merging CBS and Viacom, and then possibly selling the combined entity, the complaint reveals.

Shari Redstone's National Amusements, Inc. has fired back at CBS and its chief Les Moonves in a new complaint filed as part of their Delaware court battle for corporate control.

In a 66-page complaint filed Tuesday, lawyers for Redstone-controlled NAI took aim at CBS for the board's recent attempt to issue voting shares to common investors that would dilute the 80 percent voting control that Redstone (and father Sumner Redstone) enjoy.

"While Les Moonves is an extremely capable television executive, neither he, nor the board acting at his behest, is entitled to strip NAI of its voting control," states the NAI complaint seeking to invalidate CBS' dilutive dividend and restore NAI control.

CBS in its own statement Tuesday continued to defend its legal position in the Delaware court battle.

"The amended complaint filed last week by CBS and its special committee details the ways in which NAI misused its power to the detriment of CBS shareholders, and was submitted after careful deliberation by all involved," said CBS.

Earlier this month, CBS filed its lawsuit in Delaware Chancery Court against Shari Redstone, Sumner Redstone and NAI, currently the controlling stakeholder for CBS. In the lawsuit, CBS argued NAI's proposed CBS-Viacom transaction "is not in the best interests of CBS stockholders."

NAI has now returned fire with its own complaint that gets personal over alleged efforts by CBS and Moonves to push Shari Redstone aside.

"The only cogent, but manifestly improper, explanation for the director defendants’ unprecedented action is that Leslie 'Les' Moonves, CBS’s long-time CEO, has tired of having to deal with a stockholder with voting control and has taken particular umbrage that the exercise of such stockholder’s control has migrated from Sumner Redstone to his daughter, Ms. Redstone," the complaint states.

The gloves also come off with the allegation that Moonves is attempting to "consolidate his power at CBS," even as he had profited handsomely from his company's multiple classes of stock ownership, including a controlling shareholder.

"Mr. Moonves has been a successful CEO and has richly benefited under CBS’ dual-class share structure, to the tune of nearly $700 million over his tenure as CEO (making him one of the highest paid CEOs in America, and the highest paid in the media industry)," continues the complaint, which further asserts that Moonves challenged the Redstones to remove their voting control or he would resign.

"This ultimatum came against the backdrop of a $180 million ‘golden parachute’ in Mr. Moonves’s employment agreement that had been adopted without discussion or approval of the full board, with the intended purpose of entrenching Mr. Moonves in his position as CEO," the NAI complaint adds.

Through the complaint, Redstone says she has never aimed "to force" a recombination of CBS and Viacom, and had supported Moonves during recent merger talks. "Indeed, NAI and Ms. Redstone acceded to Mr. Moonves’ request in 2018 that Robert Bakish (Viacom’s CEO) not be named Mr. Moonves' successor or have a role in a combined company’s management while Mr. Moonves was CEO," the complaint states.

Redstone explored a reunion between Viacom and CBS — the two companies, both controlled by the Redstones, split from each other in 2005 — to create a $32 billion company better positioned to face mounting competition from digital companies such as Apple, Facebook, Google and Netflix amid current industry consolidation. Merger discussions come as Walt Disney is trying to acquire most of 21st Century Fox, and AT&T is in court to effectuate an acquisition of Time Warner.

The NAI complaint attempts to undercut a provision that Sumner Redstone, now 94 years old, inserted into a 2005 break plan for CBS and that apparently allows CBS to do as it has done — employ a dilutive dividend as a "nuclear option."

"If defendants (or any predecessor CBS board) had truly believed that the charter permitted the company to dilute NAI’s voting control through the issuance of a dividend of class A shares to all stockholders (which it does not), that would have been a material fact that CBS would have been required to disclose in its SEC filings. Yet before commencing litigation on May 14, CBS had never claimed or disclosed a belief that the charter gave it such power," the NAI complaint reads.

It also argues Shari Redstone did nothing to torpedo interest by Verizon to acquire CBS before merger talks started with Viacom, as has been claimed by CBS. "At no point during those conversations (or any other time) did Ms. Redstone discourage Verizon from speaking with any member of the CBS board or management about a potential merger or any other topic. In fact, Ms. Redstone understood that the same Verizon executive was engaged in direct discussions with Mr. Moonves," the complaint reads. 

As possible merger talks between CBS and Viacom heated up in late 2017, the NAI complaint states Redstone held "several conversations" with Moonves and urged his support for a recombination. "Mr Moonves stated that he would not 'stand in the way' of a potential transaction. Mr Moonves also shared with Ms. Redstone that he was ready for the 'next chapter' of his life, but was not sure what that was," it adds. 

During one meeting on Jan. 16, Redstone outlined to Moonves a "two-step process" that would start with a merger of CBS and Viacom, to be followed by "a sale or merger of the stronger combined entity."

After both CBS and Viacom on Feb. 1 formed special committees of directors to consider a combination, merger talks continued through March and April. But an apparent truce between Redstone and Moonves came undone over the future role of Viacom CEO Bob Bakish, an issue that came to a head during a May 1 meeting.

Soon afterward, CBS-Viacom merger talks broke down, the complaint adds, and the Delaware court battle not long after took center stage.