Redstone's Lawsuit Fires Back at Moonves in CBS Power Struggle

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Shari Redstone. Photo: David Paul Morris/Bloomberg[/caption] Shari Redstone on Tuesday said amending CBS Corp. bylaws amid the ongoing struggle for control of the media giant was necessary to prevent the permanent diminution of her voting power. In a new lawsuit, Redstone and her family's National Amusements Inc. holding company challenged several "unsupported, false and pretextual" assertions CBS has levied in recent weeks, and sought to paint a far different picture of the legal saga, which is now before a Delaware Chancery Court judge. Redstone's complaint instead targeted Leslie Moonves, accusing CBS's chief executive of launching an "unprecedented" maneuver under Delaware law to wrest voting power away from the company's controlling stockholder. "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 said. CBS responded in a statement that the lawsuit was "not unexpected" following two weeks of litigation over CBS's claims that Shari Redstone had misused her power to the detriment of the company's shareholders. "We continue to believe firmly in our position," CBS said. The new filing came less than a week after CBS asked Chancellor Andre G. Bouchard to uphold the board's 11-3 vote on May 17 to issue a stock dividend that would dilute Redstone and National Amusement's voting power from 80 percent to about 20 percent. On Tuesday, Redstone claimed the board vote was invalid in light of changes Redstone had enacted to the CBS bylaws just a day prior, requiring 90 percent of the directors to sign off on any moves that would threaten Redstone's control. CBS argued last week that the dividend was necessary to prevent Redstone from overhauling the CBS board in an effort to force a merger with sister media company Viacom, which is also controlled by National Amusements and the Redstone family. Redstone, who has repeatedly denied any such intentions, said she acted completely within her rights to protect its interests as a controlling stockholder. "If NAI had not taken this action, it would have lost forever its ability to exercise its rights under Delaware law to take action, before the hastily called special meeting, to protect its controlling interest," the suit said. CBS and a special committee of five independent directors had sued May 14, accusing Redstone of actively trying to undermine the company’s management team by seeking a recombination of Viacom and CBS, which split in 2005 under the leadership of Shari Redstone's father, Sumner Redstone. Shari Redstone rose to power as vice chair of CBS and Viacom in 2016, after a power struggle at Viacom resulted in the resignation of Sumner Redstone, who is suffering from a range of ailments at the age of 95. As president of National Amusements, she enjoys 80-percent voting control of both companies, despite owning just 10 percent of the stock, thanks to their dual-stock structure. The special committee, CBS said, had determined a merger with Viacom was not in the company's best interest and asked Bouchard to issue a temporary restraining order to prevent any meddling ahead of the board vote three days later. Less than an hour before Bouchard was set to hear arguments on the request on May 16, Redstone abruptly changed the company’s bylaws to require a supermajority of directors to approve the proposal. On May 17, Bouchard declined CBS’s request for a TRO, and the CBS directors approved the dividend later that day in a special board meeting that was attended by CBS senior management and outside counsel for both CBS and National Amusements. Redstone's lawsuit claims that it was actually National Amusements that withdrew its support of the proposed merger earlier this month, before the special committee convened to issue its own determination. And the filing alleges that Moonves, who has served as CBS's chief executive since 2006, played a bigger role in deal talks that CBS had initially indicated. According to the complaint, Moonves said last year that he would not "stand in the way" of a potential transaction, but eventually backed away from that stance amid concerns over the combined company's management structure. Finally, the suit said, Moonves gave the CBS board an "ultimatum," saying that he would step down if the directors didn't vote to remove Redstone's voting power. The complaint said that Moonves, one of the highest-paid executives in the media business, received a new contract in 2017 with a $180 million "golden parachute," should he resign for "good reasons," including board meddling. But the suit also expanded on previously vague allegations of "intimidating and bullying" behavior by Charles Gifford, a CBS director and Moonves ally. In one instance, Redstone had accused Gifford of "grabbing her face and directing her to listen to him." "After hearing that Ms. Redstone was upset by his conduct, Gifford later told her that he meant no offense, and that was how he treats his daughters when he wants their attention," the lawsuit alleged. "Ms. Redstone clarified that she was not Mr. Gifford’s daughter but instead the vice chair of CBS." In its statement, CBS dismissed the allegations against Gifford, saying, “Ms. Redstone’s issue with Mr. Gifford is that he has always operated by an entirely different definition of what it means to be an independent director—namely to act in the best interest of all CBS shareholders." "As a result of Mr. Gifford’s steadfast belief in good corporate governance, it is unfortunate and revealing that NAI has resorted to baseless personal attacks that are clearly tied to the execution of Mr. Gifford’s duties in this matter," CBS said. The Redstones and National Amusements are represented by Cleary Gottlieb Steen & Hamilton in New York and Potter Anderson & Corroon in Wilmington. A team of attorneys from Wachtell, Lipton, Rosen & Katz in New York is representing CBS in its case. The five independent directors—Gifford, Gary L. Countryman, Bruce S. Gordon, Linda M. Griego and Martha L. Minow—are represented by attorneys from Weil, Gotshal & Manges in New York. Ross Aronstam & Moritz in Wilmington is acting as local counsel for CBS. Redstone's lawsuit is captioned National Amusements v. Moonves.