CBS sues parent firm in bid for independence

ReutersNEW YORK (Reuters) — CBS Corp. filed a lawsuit Monday to reduce the voting power of controlling shareholder National Amusements Inc., the movie theater company owned by Sumner and Shari Redstone, in an act of defiance aimed at thwarting the Redstones’ plan to merge CBS with Viacom Inc.

CBS said in its lawsuit it is seeking to prevent the Redstones from ousting any directors or changing the company’s bylaws before its full board meets on Thursday to consider issuing a dividend that would curb National Amusements’ voting power.

If the dividend is approved, National Amusements’ voting rights in CBS would shrink to about 17 percent from about 80 percent, more in line with National Amusements’ economic stake in CBS of 10.3 percent, according to CBS’s lawsuit, filed with the Court of Chancery in Delaware.

Legal experts said the lawsuit was a rare example of a company attempting to use a “nuclear option” to free itself from its controlling shareholder, setting the stage for a high-stakes legal battle over the future of one of the biggest U.S. entertainment companies.

CBS is “at least sending the signal and creating evidence they had the best interests of everyone in mind, and not [Shari Redstone],” said Brian Quinn, a professor at the Boston College Law School.

National Amusements denied it had any plan to oust CBS’s board.

“National Amusements had absolutely no intention of replacing the CBS board or forcing a deal that was not supported by both companies,” it said in a statement. “National Amusements’ conduct throughout supports this, and reflects its commitment to a well-governed process.”

Shari Redstone was surprised by the lawsuit, particularly since CBS and Viacom had informally agreed on a stock exchange ratio for a deal of 0.6135 CBS shares for every Viacom class B share, according to people familiar with the situation. CNBC first reported the exact ratio earlier on Monday.

In its statement, National Amusements said it believes CBS filed its lawsuit because National Amusements had raised specific concerns about incidents of bullying and intimidation by one CBS director, dating back to 2016.

National Amusements brought these concerns up again with CBS last week, according to one of the sources familiar with the situation.

CBS declined to comment on the bullying accusation.

CBS shares ended trading up 2.2 percent at $53.65 on Monday on hopes of a better deal for the company. Viacom shares fell 5 percent at $28.74, as investors fretted over the company’s prospects as a standalone company.

CBS’s lawsuit comes after its merger negotiations with smaller peer Viacom, which National Amusements also controls, failed to produce a deal. The talks, that started in February, had hit an impasse over disagreements about price as well as the leadership of the combined company, sources have said.

It was the second attempt in three years by Shari Redstone to merge CBS and Viacom, after her father separated them 12 years ago.

National Amusements believes a deal is needed for the two media companies to gain scale and compete with growing internet powers Netflix Inc. and Inc. pushing deeper into the media business.

In its lawsuit, CBS cited the battle for control of publisher Hollinger International Inc., which like CBS had a controlling shareholder, Conrad Black, who wanted to sell control of the company over opposition from the board.Speech

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