Les Moonves, CEO of CBS, privately concedes that his fight to wrest control of the broadcast outfit from Shari Redstone could end with its sale to another player in the rapidly evolving media business, FOX Business has learned.
Insiders at CBS say a priority is achieving victory over Shari and her father, Sumner, who own a controlling stake through their holding company, National Amusements Inc. But these same insiders say Moonves is well aware of the challenges CBS will face as an independent company, given its relatively small size compared with the likes of Comcast, or if the courts allow, the proposed combination of AT&T and Time Warner.
With that in mind, Moonves will be open to a merger or being sold if the price is right. “Les knows what’s happening in the media industry,” said one CBS insider. “And he knows if he prevails here he could be sold.”
On Wednesday, a Delaware Chancery Court judge will hear arguments from CBS, which filed an unusual and explosive lawsuit earlier this week against the Redstones to dilute their controlling stake. The suit came after a contentious round of negotiations in which Shari Redstone was looking to merge CBS with the other media company the family controls, the ailing Viacom unit of National Amusements. Moonves has balked over price and her management demands.
Moonves plans a CBS board vote on Thursday to complete the dilution and strip control of the broadcaster from the Redstones. One CBS insider told FOX Business: "Les would never have even considered buying Viacom if Shari didn't force this on him."
The bold move by Moonves took the media industry by surprise, and if he’s successful, the outcome could have wide-ranging implications not just in the media business, but throughout corporate America. The lawsuit essentially puts the Chancery Court—which is regarded as the top legal venue for adjudicating more prosaic corporate disputes—in the position of determining something that is considered nearly unprecedented: Who is the rightful owner of a family company in a dispute between a controlling shareholder and management.
“The Delaware court usually doesn’t want to get involved in ownership disputes of this nature,” said a long-time media executive, who spoke on condition of anonymity. “They want to make sure parties are merely following the rules. They don’t want to get involved in a family-type dispute.”
In a statement, National Amusements said it “is outraged by the action taken by CBS and strongly refuted its characterization of the events.” The company said it was not forcing CBS to merge with Viacom and that a possible deal seemed to be on track until Moonves filed the lawsuit. The Redstones believe that Moonves filed the suit to protect an unnamed board member from being ousted over “incidents of bullying and intimation.”
A spokeswoman for National Amusements declined any further comment, but FOX Business has learned through another company executive that National Amusements is planning to make its own filing with the Delaware court sometime on Tuesday. This executive wouldn’t rule out that the Redstones could fire CBS board members to prevent Moonves’ move to dilute National Amusements' control over CBS.
But people close to Moonves believe he’s got a strong legal case to make: Namely that Viacom’s assets – which include entertainment networks like Nickelodeon and MTV, are inferior to CBS’s entertainment and news programming and that Redstone was forcing a sale at inflated prices.
And Moonves is also thinking long-term, the people add: As the drama plays out in court and in the boardroom, Moonves and his management team have weighed the possibility of CBS being purchased or merged with another company, according to two CBS insiders with direct knowledge of the matter.
A CBS spokesman declined to comment on the matter but would not deny Moonves' thinking as characterized by the insiders.
People familiar with Moonves’ priorities said at least for the near term the 68-year-old CEO wants to run CBS as a standalone outfit and to leverage its premium entertainment and news programming. He is in the middle of a long-term growth plan and has been reaching internal benchmarks.
Investors have rewarded the company by snapping up its shares, which have climbed more than 10% over the past five years. Viacom has been a market laggard, with its stock losing half its value.
That said, people in Moonves’ inner circle acknowledge that if he prevails over Redstone, his company would immediately become takeover bait for large technology companies such as Apple or even Google or Verizon, which have enormous amounts of cash on hand for such a purchase and are looking for various forms of content.
Given the rapidly changing media business, where even profitable companies such as CBS are coming under cost pressure because of the phenomenon known as cord cutting, CBS would have to consider a merger partner if and when one comes along, these people added.
"Verizon has already expressed interest in CBS," Porter Bibb, managing partner of Mediatech Capital Partners, told FOX Business, adding that the telecom giant would probably prefer a combined CBS and Viacom because together the media titans are "worth at least 50% more than the two standalones would get individually."
The first order of business for Moonves is prevailing over the Redstones. Shari Redstone took the reins of National Amusements as the health of her 94-year-old father declined. She has sought to consolidate power, first by pushing out Philippe Dauman as Viacom CEO and then by attempting to reunite Viacom with CBS.
Moonves has resisted the merger for the past two years, openly suggesting that he would rather be fired than be forced to buy Viacom at what he thought was an inflated price. He has also balked at her management demands including a push to install Viacom CEO Robert Bakish as the No. 2 at the combined company.
But Moonves believes he has a good hand in opposing his nominal boss. First, if Redstone fired him, Moonves would walk out with an enormous pay package estimated anywhere from $150 million to $200 million.
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And from a legal standpoint, he believes CBS bylaws allow him to oppose mandates from the controlling investors if they are not in the best interest of most CBS shareholders. While the Redstones hold a controlling interest in CBS, they don't own most of its stock. It is Moonves’ intention to dilute the family’s controlling stake to the point that it will vote like any other shareholder.
“Les believes he's got all the cards in this one," said a CBS executive. "If he loses and gets fired, he walks away even richer. If he wins, he is a hero to shareholders because the Viacom deal makes no sense."
And as another CBS insider said, if he sells the company down the road, he will end up with still more.