Battle for Black Rock Heats Up

National Amusements maneuvers for control of CBS, merger with Viacom
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CBS Corp.’s ongoing dispute with its largest shareholder, National Amusements Inc., escalated into full-on war after the programmer’s board of directors voted to issue a special dividend that would reduce NAI’s voting power from 79% to 20%, a move, if approved by the courts, would wrest control of the company from NAI’s ruling Redstone family.

The May 17 vote was expected and came after a week of increasingly contentious communications between CBS and NAI, also the parent of Viacom and keen to re-merge the two media companies.

CBS fired the first shot May 14, with its suit in Delaware Chancery Court asking for a temporary restraining order against NAI in an effort to prevent the holding company from interfering in a special meeting of CBS board members essentially to vote on the special dividend.

The court denied that request, and prior to the meeting, NAI amended CBS’s corporate bylaws so that any action to create a dividend would require a 90% super-majority of the vote.

That last action seemed to squash any hopes that the dividend — a stipulation that former CBS and Viacom chairman Sumner Redstone inserted into the bylaws after the two companies split in 2005 to lessen investor fears — would be issued. CBS’s board voted to issue the dividend anyway, although without the approval of NAI, it would appear to have little chance to see daylight.

CBS stock, down about 4% on May 17 as the company went into its board meeting, was up slightly (1.5%) to $52.40 in early trading May 18. Viacom stock was down about 2% to $27.59 in early May 18 trading.

While NAI said it has no intention of forcing a merger that is not agreed upon by both sides, CBS fears that NAI will use its voting dominance to eject the broadcaster’s current board members and replace them with people more favorable to a deal.

Whatever the outcome it is becoming increasingly clear that the rift between Shari Redstone — also vice chair of CBS and Viacom — and CBS chairman and CEO Les Moonves is widening. Analysts are split on CBS’s and NAI’s future, with some hoping the two sides can work out a compromise and others calling for Moonves to step aside.

“Given NAI’s promise, and fiduciary duty, to act in the best interest of CBS shareholders, we expect they should make every effort to find a way to continue working together,” Sanford Bernstein media analyst Todd Juenger wrote in a client note last week, adding he thinks there’s a nearzero chance CBS and Viacom will combine.

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