Will CBS-Viacom Brawl End With Leslie Moonves' Golden Parachute?
Two media giants head to court as the TV mogul places a last-ditch bet on outmaneuvering Shari Redstone, with the fate of an empire on the line.
Is Shari Redstone the protagonist in a drama that could be titled "Daddy Dearest," in which her domineering father years ago quietly devised a method to block her from eventually taking control of his media empire? Or is CBS Corp., which stunned Redstone by suing May 14 to prevent her from forcing a merger with Viacom, just playing the long odds with an audacious legal argument? Has CBS chairman Leslie Moonves calculated that even if his side loses, he'll be paid handsomely to leave while sparing himself a possibly futile struggle to make a success of the combined companies?
Those are among the looming questions now that Moonves, 68, has launched open and potentially very personal warfare with Redstone, 64. CBS is arguing that a largely unknown (until now) provision in its charter allows the company to dilute the Redstones' long-standing control by issuing new voting shares to stockholders. The implication is that in 2005, when mogul Sumner Redstone split his media empire into two stand-alone companies — CBS and Viacom — he slipped in a provision giving the respective boards a way to block his daughter should she eventually try to impose her will.
The Redstones' National Amusements holding company says it "strongly disagrees" with the CBS interpretation of the provision in question and that there never was any intention of forcing a merger.
Clearly Shari recoils at any suggestion that her now-ailing father meant to stymie her. While certainly Sumner did not always express a fond parent's faith in his daughter's ability to succeed him, she takes the position that Sumner supported her in 2005 when the companies were split and supports her today. (Whether Sumner, now a frail 94 and unable to speak, is capable of expressing an opinion on this issue could become a very sensitive part of the dispute.)
When Shari seized control of Viacom in 2016, then-chairman Philippe Dauman did not attempt to invoke the so-called "nuclear option," choosing instead to take a very large check (about $72 million) to go away. But to many observers, Dauman had long appeared to be phoning it in and stashing the cash while Viacom drifted deeper and deeper into difficulty as its cable channels (MTV, Nickelodeon) and Paramount studio faltered and the media landscape changed.
At the same time, Moonves — also richly remunerated (he made $69.3 million in 2017) — has long been the undisputed master of his domain and has delivered good results even in turbulent times for CBS and the broadcast industry. He commands the loyalty of his board and the support of many, though not all, Wall Street analysts.
Under pressure to deliver scale in an advertising market increasingly dominated by Google and Facebook, Shari has decided the best path for her family empire is to merge CBS and Viacom into one $32 billion company. But Moonves' insistence on maintaining control does not come as a surprise to anyone who knows him. And Shari was willing to leave him in charge of a combined company — for now — though initially she insisted on some meaningful role for Bob Bakish, her handpicked Viacom CEO. Some observers thought she had in effect blinked when she then agreed that Moonves didn't have to give Bakish, 54, a top job as long as he got a board seat. But CBS apparently saw that as allowing the camel to poke its nose into the tent, as lawyers like to say.
Now CBS has rejected the whole idea of a merger, opting instead to go to war. In legal papers filed in Delaware, the company questions Shari's earlier tactics in taking control of National Amusements and Viacom and explicitly argues that she "presents a significant threat of irreparable and irreversible harm" to CBS. It also claims Shari stymied a potential acquisition of CBS — sources say the suitor was Verizon — that would have benefited CBS shareholders. In response, National Amusements says it "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."
The move to dilute the Redstones' 80 percent voting power certainly is unusual, according to legal experts. "I don't know if it's going to work," says University of Pennsylvania law professor Jill Fisch. "Maybe nobody's ever thought of it." Columbia Law School professor John Coffee agrees CBS' move is "radical" and references two other corporations with dual-class share structures designed to ensure voting power. "Remember, if this can happen at CBS, it could happen at Facebook or Google years from now."
In the suit, CBS argues that the so-called "Redstone discount," meaning the family's super-majority voting control, has long been viewed by Wall Street as "a potential cloud and depressant on the market value of CBS stock." In other words, CBS shareholders suffer under Redstone rule, so the solution should be independence. Pointing to registration and proxy statements through the years, CBS claims the company has been held out to regulators and anyone buying common stock as an entity that would be governed by an independent board. The first test of this bold theory comes at a hearing May 16 in Delaware Chancery Court. But that's only the beginning. It won't settle the big issues such as Moonves' continued role at CBS and Shari's potential fiduciary-duty counterclaims against the CBS board.
And, of course, a deal could still be in the cards. As top Delaware corporate lawyer Francis Pileggi notes, "A lot of the time, litigation is used as a negotiating tactic." Especially when it comes to the Redstone empire.
Or Moonves may have another goal in mind. One longtime industry insider — the veteran of his own Redstone wars — says the odds of CBS prevailing in court seem to be so long that "it smells to me like Les wants to get canned, collect his pay and go home." That go-away fee could be much larger than Dauman's, between $180 million and $280 million, according to an analysis of recent SEC filings. And the clock is ticking. Unless a deal is reached, the nuclear war could take an additional toll on two companies struggling to keep pace with digital goliaths. Viacom disclosed about 100 additional cost-cutting layoffs on May 15.
Analyst Steven Cahill warns that if Redstone goes to the mat to keep control and push through a merger, that could lead to "names being dragged through the mud and uncertainty over leadership and corporate structure for some months or even years as legal cases play out, likely with a fair amount of name-calling along the way." The only sure thing: The lawyers will prosper and Moonves will, too.
This story first appeared in the May 16 issue of The Hollywood Reporter magazine. To receive the magazine, click here to subscribe.