Shari Redstone, who controls both CBS and Viacom, wants to merge the two companies.
CBS hates the idea, and now we know how much it hates the idea: The CBS board is suing Redstone to stop the deal from going forward.
For the record, CBS is trying to remove Redstone’s grip on the company by diluting her voting shares so that she no longer has a controlling stake in the company. The Redstone family, like other media and tech bosses, has enjoyed effective control of CBS and Viacom, even though they are public companies, via a special class of shares. The CBS charter has a provision that would allow the company to dilute controlling owners, which, notably, was approved by Shari’s father, Sumner Redstone.
But the big picture is that CBS and its CEO Les Moonves pushed back against Redstone when she tried to force a CBS/Viacom merger in 2016, and now they are doing it again. Except this time, it seems impossible for them to repair the relationship, now that Moonves and company have moved to all-out war to stop the deal.
Even if CBS and Viacom somehow sort out a deal, the unprecedented move on the part of Moonves tells us it will become harder for him to remain a part of such a combined company. If, however, he succeeds in curtailing Redstone’s power, he’ll be an independent CEO and can he sell CBS to someone else.
In a statement, Redstone’s family company, National Amusements, said it was “outraged” by the suit and “strongly refutes its characterization of recent events.”
Redstone’s company went on to suggest the suit was prompted by concerns it raised about a CBS board director and “incidents of bullying and intimidation...dating back to 2016,” the statement read. The company didn’t cite the specific board member.
Important details, via CBS’s filing in a Delaware state court this morning:
- CBS says Redstone and her National Amusements holding company are breaching their fiduciary duty to shareholders by trying to force the deal.
- CBS, which believes it probably should merge with another entity as big media companies consolidate, has floated other deals instead of the Viacom pact. But the lawsuit alleges that Redstone “told the CEO of a potential acquirer of CBS that he should not make such an offer.” A person familiar with the exchange says the would-be buyer was Verizon — which also put out feelers about buying most of 21st Century Fox last summer.
- CBS argues that when Redstone first proposed merging Viacom and CBS in 2016, deal talks stopped as soon as CBS insisted that the merged company would operate outside her control for at least five years.
- CBS argues that it has tried to take the latest round of deal talks seriously, but that it remains far apart from Redstone’s pitch when it comes to price and governance (Redstone wants Viacom CEO Bob Bakish to have a management role in the combined company; Moonves wants nothing to do with them).
- CBS also accuses Redstone of leaking to try to influence the deal: “On numerous occasions, press reports have been sourced to ‘persons close to Ms. Redstone’ or ‘persons with knowledge of Ms. Redstone’s thinking’ or similar formulations, indicating that Ms. Redstone was the source of the leaks.”
Some background on the terms of the proposed merger and Redstone’s control:
- Redstone controls 79 percent of the voting rights of both CBS and Viacom through her family company, National Amusements.
- CBS has proposed through a special mechanism to dilute her control of CBS down to 17 percent, and the vote for that will take place on a special meeting on Thursday.
- Redstone had asked the boards of CBS and Viacom to explore a merger, and CBS offered to absorb Viacom is an all-stock deal valued at $11.9 billion. Viacom countered with a higher bid of $12.7 billion.
We’ll add to this as we go — we’ve asked CBS and Viacom reps for comment. And it is also possible that the lawsuit itself is just another extension of the brinksmanship between Redstone and Moonves, and that the two can get to a deal eventually. But it looks harder than ever.
Oh, also: CBS and Moonves are scheduled to put on their “upfront” presentation to advertisers on Wednesday — a high-gloss affair where they push the idea that CBS is the best place for marketers to put their money. That show just got a lot more interesting.
This article originally appeared on Recode.net.