Red­stones said to op­pose giv­ing Moonves their CBS-Vi­a­com votes

China Daily (USA) - - IN DEPTH - By BLOOMBERG

Shari and Sum­ner Red­stone want Les­lie Moonves to run a com­bined CBS Corp and Vi­a­com Inc, but they aren’t will­ing to of­fer him a stake or vot­ing con­trol of their fam­ily’s hold­ing com­pany, peo­ple fa­mil­iar with the mat­ter said.

The Red­stones have said pub­licly that they won’t sup­port a deal that re­quires them to give up con­trol of CBS or Vi­a­com. That in­cludes sur­ren­der­ing vot­ing con­trol to Moonves, the chief ex­ec­u­tive of­fi­cer of CBS, de­spite the Red­stones’ re­spect for him, said the peo­ple, who asked not to be iden­ti­fied dis­cussing pri­vate in­for­ma­tion.

The fam­ily will have to seek com­mon ground over governance with Moonves to go through with its plan to merge the two me­dia giants with him as CEO. Re­viv­ing faded Vi­a­com net­works like MTV and Com­edy Cen­tral might be a tempt­ing chal­lenge for Moonves, 67. But he has run CBS with lit­tle in­ter­fer­ence and would want sim­i­lar free­dom if the com­pa­nies are joined to­gether, ac­cord­ing to a per­son fa­mil­iar with his think­ing.

Moonves will prob­a­bly want lan­guage in his con­tract sim­i­lar to his cur­rent CBS agree­ment, which guar­an­tees that in­de­pen­dent di­rec­tors re­main and say she re­ports solely to the board and is the high­est-rank­ing ex­ec­u­tive of the com­pany, said another per­son fa­mil­iar with the mat­ter.

Moonves may seek pro­vi­sions pre­vent­ing the Red­stones from uni­lat­er­ally re­plac­ing board mem­bers and lim­it­ing the board’s author­ity, the per­son said.

That could pre­vent sit­u­a­tions like ear­lier this year, when Na­tional Amuse­ments for­bade the pro­posed sale of a stake in Vi­a­com’s Para­mount Pic­tures movie stu­dio with­out unan­i­mous board ap­proval.

To re­tain Moonves, the Red­stones should con­sider giv­ing him con­trol of their vot­ing shares, said Mario Ga­belli, whose funds are some of the largest share­hold­ers in CBS and Vi­a­com. That would give Moonves a de­gree of free­dom to pur­sue the best path for the com­pany, Ga­belli said.

“If I were Les, I would ask for that,” Ga­belli said in an in­ter­view.

Spokes­men for CBS, Vi­a­com and the Red­stones de­clined to com­ment.

The Red­stones, whose Na­tional Amuse­ments Inc owns an 80 per­cent vot­ing stake in both com­pa­nies, asked CBS and Vi­a­com late last month to ex­plore a merger. That re­quest is part of a series of moves spurred by Shari Red­stone, who won a bat­tle this year against for­mer Vi­a­com CEO Philippe Dau­man to con­trol the fate of Vi­a­com. She has spear­headed changes at the com­pany, as­sert­ing her­self with her 93-year-old fa­ther Sum­ner in poor health.

The idea now is to re­vive Vi­a­com, whose Para­mount Pic­tures movie stu­dio is also in dis­ar­ray, by putting the com­pany un­der the ex­pe­ri­enced hand of Moonves, who has helped CBS re­tain its lead as the most watched US TV net­work.

There’s prece­dent for us­ing vot­ing con­trol as a re­ten­tion tool, Ga­belli said. In the mid1980s, bil­lion­aire War­ren Buf­fett, agreed to vote his shares in Cap­i­tal Cities/ABC Inc with man­age­ment as long as Tom Mur­phy and Daniel Burke, the com­pany’s CEO and pres­i­dent, re­mained in place.

Ma­jor­ity of the mi­nor­ity

Moonves’s level of con­trol is just one of many is­sues that will likely be con­sid­ered as CBS and Vi­a­com be­gin dis­cus­sions over a po­ten­tial merger, peo­ple fa­mil­iar with the process said. Na­tional Amuse­ments re­quested that the busi­nesses cre­ate spe­cial com­mit­tees of their boards to con­sider a deal. The Red­stones said they wouldn’t par­tic­i­pate in board de­lib­er­a­tions on the sub­ject.

To prove their merger is backed by smaller in­vestors, the CBS and Vi­a­com boards may rec­om­mend that Na­tional Amuse­ments re­cuse it­self from any merger vote.

That would mean that only the 20 per­cent of the vot­ing shares not held by the Red­stones vote on the deal, a prac­tice known as a “ma­jor­ity-of-the-vote.

This ap­proach could give Ga­belli, whose funds hold more than 10 per­cent of the vot­ing shares in both com­pa­nies, the de­cid­ing vote in a merger.

Ga­belli was among in­vestors whose con­trol of vot­ing shares brought down Cable­vi­sion Sys­tems Corp.’s plans to go pri­vate in 2007 when the Dolan fam­ily al­lowed a ma­jor­ity of the mi­nor­ity to vote on that deal. To pre­vent Ga­belli from dic­tat­ing the out­come of a trans­ac­tion, as a mat­ter of per­ceived fair­ness, CBS and Vi­a­com could al­low the own­ers of Class B Vi­a­com shares, which don’t have vot­ing rights, to vote on the deal any­way.

Ga­belli said he would have con­cerns about let­ting Class B share­hold­ers vote.

“That would be very un­usual,” he said. “I paid a pre­mium to get the vot­ing stock for my clients.”

More Fair out­come

Ma­jor­ity share­hold­ers like Na­tional Amuse­ments don’t legally need to seek ap­proval from mi­nor­ity in­vestors for a merger.

But courts in Delaware, where CBS and Vi­a­com are in­cor­po­rated, have been en­cour­ag­ing com­pa­nies to do just that to pro­duce a more fair out­come, ac­cord­ing to Lawrence Hamer­mesh, a pro­fes­sor of law at Widener Univer­sity’s Delaware Law School in Wilm­ing­ton.

There’s no rea­son Ga­belli couldn’t be given the de­cid­ing vote, if there aren’t any cir­cum­stances where he shouldn’t, Hamer­mesh said. He said he’d never heard of a sit­u­a­tion where non-vot­ing share­hold­ers got the right to vote.

The Vi­a­com spe­cial com­mit­tee ex­am­in­ing a merger is com­posed of four newly ap­pointed di­rec­tors and one from the old Vi­a­com board.

BLOOMBERG

Les­lie Moonves, pres­i­dent and chief ex­ec­u­tive of­fi­cer of CBS Corp.

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