Shari Redstone Changes CBS Bylaws to Block Leslie Moonves' Legal Maneuver

Matt Furman
Shari Redstone

The National Amusements move happens as a Delaware court holds a hearing Wednesday.

Shari Redstone has made her next move in the legal showdown that puts the fate of the CBS and Viacom merger in uncharted territory. 

The Redstone-controlled company National Amusements issued a statement Wednesday saying it "has delivered written consents to CBS to amend CBS’ Amended and Restated Bylaws, effective immediately, to safeguard against unlawful action by CBS and its special committee in derogation of their fiduciary obligations to shareholders."

"The amendment principally requires that certain board actions with respect to dividends and amendments of CBS’ bylaws be approved by a supermajority of the CBS Board of Directors and be subject to certain procedural requirements," the NAI statement continued. 

In plain English, Redstone is attempting to block a plan by CBS to issue new voting shares to its investors in order to dilute the 80 percent voting control that she (and father Sumner Redstone) enjoy via their ownership of National Amusements, which owns a slew of special shares of both Viacom and CBS.

The move from National Amusements arrives as a Delaware court is holding a hearing Wednesday over a CBS lawsuit stating that "the proposed Viacom transaction is not in the best interests of CBS stockholders."

Shari Redstone is allegedly attempting to merge Viacom with CBS to create a $32 billion company that she thinks would be better positioned to navigate mounting competition from digital companies such as Apple, Facebook, Google and Netflix, and to keep up with Disney, which is trying to purchase most of 21st Century Fox, and with Time Warner, which is trying to merge with AT&T.

Viacom and CBS were once a single company, but 13 years ago Sumner Redstone split them in two. Ninety-four years old and unable to speak, it's not yet publicly known whether he backs his daughter's plan to recombine the companies. It was Sumner himself, though, who allegedly slipped a provision into the 2005 breakup plan that allows for CBS to do exactly what it is attempting to do, which is known as the "nuclear option." 

Viacom and National Amusements say that CBS is misinterpreting the 13-year-old provision, and the matter is being closely watched on Wall Street and in corporate boardrooms nationwide, especially where there are multiple classes of stock ownership available. "Remember, if this can happen at CBS, it could happen at Facebook or Google years from now," says Columbia Law School professor John Coffee.

Naturally, CBS says it is acting in the best interest of its shareholders, and it even claims that Shari Redstone may have killed a potential acquisition of the network for a premium that all of its investors would have benefited from. Insiders say the party that had been interested in buying CBS was Verizon.

National Amusements said it is "outraged by the actions taken by CBS and strongly refutes its characterization of recent events," including a claim by CBS that NA was trying to replace the CBS board in order to usher through a Viacom-CBS merger that CBS CEO Les Moonves clearly opposes.

The merger would be positioned as CBS purchasing Viacom, as the former is the more valuable company. Judging from the fact that Viacom shares are down 7 percent in the past four days, Wall Street doesn't seem convinced the merger will happen or, if it does, that CBS will be paying too much of a premium.

Another potentially dangerous outcome of this feud, some insiders say, is that the parties could be made to air their dirty laundry in public or that embarrassing leaks to the press could be forthcoming.

If Redstone prevails and Moonves ends up stepping down at CBS, he will walk away with something in the neighborhood of $182 million in the form of a golden parachute, or as much as $280 million, depending how things play out.