Report: Shari Redstone Surprised By CBS Lawsuit

CBS Corp filed a lawsuit on 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.

According to Reuters, 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.

The CBS special committee, tasked with evaluating the possible recombination with Viacom, decided over the weekend the merger wouldn’t be in the best interests of all CBS investors, according to The Wall Street Street Journal.

CBS said it is seeking a temporary restraining order to prevent Ms. Redstone, president of National Amusements and vice chairman of both CBS and Viacom, from replacing CBS board members and forcing through a merger.

Lawyers for CBS Corporation and the Redstone run National Amusements will meet in front of Chancellor Andre Bouchard in Delaware’s Court of Chancery on May 16 at 2 PM to argue over the media corporation’s desire for a temporary restraining order.

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.

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.”

Wall Street Journal graphic

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.