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Stock Analyst Update

CBS Declares War on Shari Redstone

We're maintaining our moat ratings and fair value estimates on both CBS and Viacom.

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 CBS (CBS) and the special committee of its board filed a lawsuit on May 14 against National Amusements, accusing it of breaching its fiduciary duty. The lawsuit also seeks to prevent National Amusements, CBS' controlling shareholder, from stopping the special meeting of the board during which the directors will vote on a proposal to issue a dividend of Class A shares to all holders of the Class A and Class B shares. This move would effectively dilute the voting rights of National Amusements from 79% to 17%, in line with its economic interest. The lawsuit and attempt to dilute the voting rights of National Amusements are direct results of the ongoing battle between CBS CEO Les Moonves and National Amusements controlling shareholder Shari Redstone about the merger of CBS and Viacom and the terms of the reunion of the two media firms controlled by the Redstone family. National Amusements issued a statement that refuted the CBS version of the events and said it intends to fight any attempt to dilute its voting power, setting up a potentially long court battle. We are maintaining our narrow moat ratings for both firms and our fair value estimates of $71 for CBS and $35 for Viacom.

CBS is specifically accusing National Amusements of breaching its fiduciary duty due to the actions of Shari Redstone. The lawsuit alleges that Redstone "improperly interjected herself into negotiations" and "acted to undermine CBS's highly lauded and successful management team in a series of escalating attacks." The board also claims that Redstone told a potential buyer to not make an offer for CBS and did so without the approval of the board. News reports have speculated that Redstone would attempt to stack the board at CBS with independent directors aligned with her views if the merger did not occur. Recent board appointee Richard Parsons, the former CEO of Time Warner, was the third independent director elected in the past year who is viewed as being an ally of Redstone.

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Neil Macker does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

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