Drama at CBS: judge denies bid to dilute Redstone power

Shari Redstone won the first round Thursday of a messy legal battle for control of CBS Corp, but the media group said the fight is not over yet.

A Delaware judge rejected a petition from the CBS board of directors to block the Redstone family's holding company from interfering with the evaluation of any merger deal.

The decision allows Shari Redstone -- daughter of media empire builder Sumner Redstone -- to keep tight control over the television and media group, with the power to replace its board.

It also could clear the way for CBS to reunite with Viacom, although the Redstones' National Amusements Inc (NAI) holding firm has said it is not seeking to force a tie-up.

CBS had sought to block any effort by Redstone and NAI to meddle with the board ahead of a planned meeting where it was to consider a measure to dilute her voting shares.

"CBS management and the special committee cannot wish away the reality that CBS has a controlling shareholder," NAI said in a statement.

"NAI yesterday exercised its legal right to amend the company's bylaws to require a supermajority vote on certain board actions with respect to dividends, effective immediately."

The CBS board of directors went through with the vote, unanimously declaring a dividend that, if endorsed by the courts and issued, would dilute NAI's voting interest to 20 percent from 79 percent, according to a release.

"The company believes that the written consents delivered by NAI purporting to amend the company's bylaws are neither valid nor effective," a board statement said.

The board also postponed an annual shareholders meeting scheduled for Friday, citing the corporate intrigue and legal wrangling.

Delaware Chancery Court judge Andre Bouchard said CBS failed to show it would suffer "irreparable" harm if its petition were denied.

NAI welcomed the ruling, saying the judge blocked an "unprecedented motion to try to deprive a shareholder of its fundamental voting rights."

"The court's ruling today represents a vindication of National Amusements' right to protect its interests," said the holding company led by Shari Redstone, who controls the shares for her ailing 94-year-old father.

A CBS statement said the judge did not rule out a potential legal claim against Redstone for failing to act in the interest of shareholders.

"While we are disappointed that the judge did not grant a (restraining order), the ruling clearly recognizes that we may bring further legal action to challenge any actions by NAI that we consider to be unlawful, and we will do so," CBS said.

- Future clouded at CBS -

The court fight brought into the open the power struggle between Redstone and CBS chief Les Moonves.

CBS had claimed that Redstone was seeking to force a merger with Viacom -- which is also controlled by the family and which was split from CBS in 2006 -- on terms that were unfavorable to public CBS shareholders.

The Redstone holding company controls about 10 percent of the equity of CBS but has nearly 80 percent of the voting power through a special share class.

NAI has disputed the claim by CBS that it wants a merger without the support of both firms.

But the open clash is likely to lead to major shakeup at CBS in the event of a merger with Viacom. CBS shares sank around four percent following the ruling.

"Ultimately, we believe it is hard to imagine Moonves having a role in the combined company," BTIG Research analyst Richard Greenfield said in a note to clients this week.

"We have a hard time seeing how any of the independent CBS directors in addition to Moonves, can be allowed to stay, given they are actively seeking to violate National Amusement's shareholder rights under the CBS bylaws."

CBS divisions include its large US broadcast television network, Network Ten Australia, Showtime Networks and the publisher Simon & Schuster, among others.

Viacom operates the Paramount studios in Hollywood, along with cable channels Nickelodeon, MTV and Comedy Central, and has content agreements with TV operators in Britain, Argentina and India.

The lawsuit is the latest drama involving the media-entertainment empire built by Sumner Redstone, whose fitness and mental status have been questioned in legal proceedings.

In a separate legal clash in 2016, Shari Redstone was accused of manipulating her incapacitated father to gain control of the media empire.