How the CBS-Viacom-Redstone court battle could play out

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In its lawsuit, CBS said that its stock has fallen from nearly $70 to around $50 in the last several months. (Kristin Dos Santos)

Remerger discussions between CBS and Viacom went from shaky to downright hostile Monday when CBS sued majority owner National Amusements, and the court date is set.

Lawyers for CBS and Shari Redstone’s National Amusements will meet in the Delaware Court of Chancery on May 16 to discuss the temporary restraining order requested by CBS to prevent National Amusements from interfering with or replacing its board.

CBS requested the TRO so it can pursue a common stock dividend that would dilute National Amusement’s stake in CBS from 79% to 17%. The move comes as National Amusements has again pursued recombining CBS and Viacom. CBS intends to meet with its board on May 17 to discuss the dividend.

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Jefferies analyst John Janedis warned that the court process could take much longer and put off CBS’ common stock sale plans.

“While the dividend is to be voted on Thursday, CBS has agreed to take no definitive action until a resolution is reached in the courts (including appeals)—a process we think could take ~6mos,” Janedis wrote in a research note.

RELATED: CBS sues National Amusements over Viacom remerger fight

Jefferies said that it is unaware of a controlling shareholder ever being diluted like CBS is proposing but it believes the move by CBS could result in a stock rebound “given the (at least temporary) lift of the M&A overhang.”

In its lawsuit, CBS said that its stock has fallen from nearly $70 to around $50 in the last several months—an approximately $7 billion loss in market cap born by Class B stockholders.

Barclays analyst Kannan Venkateshwar said the lawsuit by CBS reads as something of a dice roll that could lead to a “definitive end state” of either an independent CBS or the ouster of CBS’ management team.

“The decision to file a lawsuit indicates to us that CBS management and part of the board has effectively decided either to take control away from the Redstones and chart their own course or to in effect be removed. This is not too dissimilar to the course of action at Viacom sometime back when the board sued the Redstones, but the circumstances were different due to the ground of litigation as well as credibility of the management team at Viacom,” Venkateshwar wrote in a research note.

CBS accused Redstone of interfering with the CBS board nomination process, of undermining CBS’ management team and blocking another unnamed acquisition partner from pursuing a deal with CBS.

National Amusements said the TRO that CBS requested is due to National Amusements raising concerns about incidents of bullying and intimidation in relation to one CBS director, dating back to 2016.

“National Amusements (NAI) is outraged by the action taken by CBS and strongly refutes its characterization of recent events. NAI had absolutely no intention of replacing the CBS board or forcing a deal that was not supported by both companies. NAI’s conduct throughout supports this, and reflects its commitment to a well-governed process," National Amusements said in a statement. "Ensuring the long-term success of CBS continues to be NAI’s sole interest. This precipitous lawsuit, and the efforts of CBS management and its “independent” directors to wrest voting control from NAI, are outrageous. We intend to defend our position vigorously and look forward to presenting our arguments in court.”

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