CBS.A CBS Corp

By Keach Hagey and Joe Flint 

Shari Redstone is moving to thwart CBS Corp.'s efforts to strip her family of voting control.

The Redstones' family holding company, National Amusements Inc., issued a change to CBS's bylaws on Wednesday in an attempt to block the board's ability to dilute its voting power.

Amending the bylaws marks a significant escalation in the battle breaking out between Ms. Redstone and CBS.

CBS said in a lawsuit this week that it wants to prevent Ms. Redstone and National Amusements from overhauling CBS's board and forcing a merger of CBS and its sister media company Viacom Inc.

The Redstones and National Amusements responded Wednesday in a legal filing, saying they had no such intentions. They called CBS's attempts to issue new voting shares to dilute their nearly 80% voting control "egregiously overboard and unjustified." They also argue that CBS would have other options legally that wouldn't require diluting the Redstones' voting interest, including challenging the removal of any director.

"This is an unprecedented usurpation of a controlling stockholder's voting power," National Amusements' lawyers wrote.

The documents filed by the Redstones were in opposition to the motion for a temporary restraining order that CBS's special committee of independent board members filed on Monday. The plaintiffs are seeking to block National Amusements from replacing board members or modifying the company's governance documents before CBS convenes a special meeting to vote on diluting the Redstones' control.

A half hour before the start of a hearing on the temporary restraining order in Delaware Chancery Court on Wednesday, National Amusements announced a change to CBS's bylaws requiring a supermajority of board members to approve actions such as dividends and amendments to bylaws. The effort to dilute National Amusements' voting power is structured as a stock dividend.

The supermajority requires 90% of CBS's 14 board members to approve such a change, according to a person familiar with the matter. Because Ms. Redstone, who is vice chairman of CBS, would likely have the support of the two Redstone family lawyers also on the board, Rob Klieger and David Andelman, that would make CBS's proposed dilution of the Redstones' voting control unlikely to pass, the person said.

"The latest step by NAI provides further evidence of why we concluded that we had no choice but to file our action in the Delaware courts, in order to protect the interests of all CBS shareholders," CBS said in a statement in response to the bylaw change. "We continue to be confident in our position and look forward to presenting our case in court."

In court documents, National Amusements said that while it had no intention of overhauling CBS's management and board, CBS's latest actions "have forced NAI to consider exercising its rights."

Ms. Redstone has been urging CBS and Viacom, the two companies National Amusements controls, to consider a merger for the better part of two years. After dropping an effort in late 2016, she revived it at the start of the year.

According to the National Amusements' lawyers, the CBS and Viacom special committees considering the merger came to an economic agreement on the terms of the merger, and were simply held up over Ms. Redstone's desire that Viacom Chief Executive Bob Bakish get a board seat in the merged company -- a nonstarter for CBS Chief Executive Leslie Moonves.

A CBS spokesman said, "There could not have been a deal on price in isolation from the other aspects of this transition."

In court documents, CBS said its special committee came to the conclusion last weekend that a merger wasn't in the best interests of CBS shareholders. In determining to take action to dilute the Redstones' voting interest, CBS pointed to press reports, including in The Wall Street Journal, that Ms. Redstone was considering replacing board members.

While National Amusements denies it ever considered a wholesale overhaul of CBS's board, it said in its filing that it did push to replace one CBS board member: Charles Gifford. A major figure in Boston's financial community and chairman emeritus of Bank of America, Mr. Gifford is close to Mr. Moonves and sat on CBS's powerful compensation committee, according to people familiar with the matter.

He also sits on CBS's special committee, which consists of five independent directors evaluating the merger. All five were named as plaintiffs along with CBS Corp. in Monday's lawsuit against Ms. Redstone and National Amusements.

Last Friday, Mr. Klieger -- an attorney for Ms. Redstone and her father, ailing mogul Sumner Redstone -- told CBS director Bruce Gordon about National Amusements' "discomfort with the continued board position of Mr. Gifford given certain incidents that took place in 2016 and 2017," and asked for him to be quietly removed from the board, according to the documents.

CBS said in a statement that it is "unfortunate and revealing that NAI has resorted to baseless personal attacks against a member of the CBS Board and its Special Committee," adding that the allegations against him are "not only vague and unsubstantiated, they are utterly inconsistent with our knowledge of him." CBS added that just six weeks ago NAI "expressed its intention in an SEC filing to re-elect him."

Mr. Gifford referred a call to CBS and its statement.

National Amusements argues that voting to strip it of its controlling position would be "a breach of fiduciary duty by the directors who vote in favor of it" with "simply no precedent in Delaware law." It further argues that the dilutive dividend would be "invalid," based on past court actions protecting the rights of controlling shareholders.

CBS countered that it is a "basic principle of Delaware law that a controlling stockholder cannot use its control over corporate process to harm other stockholders."

National Amusements said it was "at a loss to explain" CBS's actions "except that CBS Board and management team have simply become uncomfortable with the reality that CBS has a controlling stockholder and would prefer that that not be the case."

Write to Keach Hagey at keach.hagey@wsj.com and Joe Flint at joe.flint@wsj.com

(END) Dow Jones Newswires

May 16, 2018 14:43 ET (18:43 GMT)

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