By Jessica Toonkel and Tom Hals
(Reuters) - The Redstone family sought on Wednesday to amend CBS Corp's (N:CBS) bylaws to prevent its board of directors from issuing a special stock dividend that would eliminate much of its voting power, as a court room showdown between them loomed.
The move came after National Amusements Inc (NAI), the Redstone movie theater company that controls CBS and peer Viacom Inc (O:VIAB), said in a court filing earlier on Wednesday that a CBS proposal to strip its voting control through the dividend is "invalid", and urged a judge to rule against CBS at a 2 p.m. ET hearing in Wilmington, Delaware on Wednesday.
CBS is seeking a restraining order to prevent Shari Redstone from rewriting its bylaws or sacking directors ahead of a board meeting on Thursday. It was not immediately clear how National Amusements' decision to change the bylaws, to make the dividend's approval subject to a supermajority of CBS's board of directors, would affect the court's decision.
"NAI believes the irresponsible action taken by CBS and its special committee put in motion a chain of events that poses significant risk to CBS. Due to the magnitude of this threat, NAI was compelled to take this measured step to protect its position while also mitigating further disruption to CBS," National Amusements said in a statement.
CBS had said its board was considering a special dividend that would dilute National Amusements' voting power to 17 percent from 80 percent, a move legal experts called a "nuclear option."
In court filings on Wednesday, both sides said they were being forced to take extreme measures. National Amusements said it might have to sack the board to protect its voting power, and CBS said it might have to dilute the Redstones' voting control to prevent abuses.
National Amusements requested the Delaware court deny the restraining order and said in court papers CBS rejected an offer of a standstill agreement that required the latter to drop its plan for the special dividend.
The showdown comes as the Redstones are seeking to merge CBS and Viacom to create a company they say will be better able to compete in the media landscape that has been reshaped by the likes of video-streaming company Netflix Inc (NASDAQ:NFLX).
A CBS special board committee has resisted that deal, citing in part concerns about corporate governance of the merged company.
National Amusements said on Monday it believed CBS sought a temporary restraining order because National Amusements had raised specific concerns about incidents of bullying and intimidation by one CBS director, dating back to 2016.
On Wednesday, in its court filing, National Amusements identified that CBS board director as Charles Gifford, an independent director and member of the special committee.
"The allegations regarding him (Gifford) are not only vague and unsubstantiated, they are utterly inconsistent with our knowledge of him," CBS said in a statement.
National Amusements said on Monday it did not intend to replace the board, but on Wednesday signaled that had changed. It said it was facing a "Hobson's choice": accept massive dilution or "consider taking various stockholder action to protect itself from dilution."
If forced out, directors and management could collect large "golden parachute" payments, according to National Amusements.
CBS Chief Executive Les Moonves could collect more than $150 million and Barclays (LON:BARC) estimated the CBS management would receive $375 million in total.
CBS has said it is acting to protect shareholders and the company from abuses by Shari Redstone, who the CBS board accused of undermining management by talking to potential CEO replacements and rejecting a potential acquirer of CBS.
They cited her sacking of independent directors at Viacom, and fear similar steps at CBS.
CBS said the Redstone family was desperate to avoid allowing the Delaware court to consider if the dilution plan was an appropriate response to the Redstone actions.
The proposed dividend would not dilute the economic interests of any CBS stockholder, but would help the company to operate as an independent, non-controlled company and fully evaluate strategic alternatives, CBS has said.
Shares of CBS were down about 1 percent at $53.90 in midday trading on the New York Stock Exchange. Viacom share rose about 1.2 percent to $28.63.
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