A Delaware judge has denied CBS‘ request for a temporary restraining order to bar controlling shareholder Shari Redstone from blocking a planned vote today by the CBS board of directors on a move that would dilute Redstone’s voting power in the company.
Delaware Chancery Court Chancellor Andre Bouchard issued his ruling Thursday just before noon ET. CBS vowed to proceed with its plan to hold the board vote at 5 p.m. ET today. CBS shares plunged more than 6% after the judge’s ruling hit, although they regained some ground by 1 p.m. CBS is also scheduled to hold its regularly scheduled annual shareholders meeting on Friday — which will surely be an awkward affair given the corporate infighting.
“We are pleased by the court’s decision to deny CBS and its special committee’s unprecedented motion to try to deprive a shareholder of its fundamental voting rights,” a spokeswoman for National Amusements said. “The court’s ruling today represents a vindication of National Amusements’ right to protect its interests. As we intend to demonstrate as the case proceeds, the actions of CBS and its special committee amount to a grievous breach of fiduciary duties and show no regard for the significant risk posed to CBS and its investors.”
Bouchard’s ruling acknowledged that CBS may have a “sufficient” case to pursue against National Amusements for breach of fiduciary duty but he did not see the potential for “irreparable harm” being done to the company in the absence of a restraining order. He noted that the dramatic step of a restraining order was not necessary because he has broad authority to rule on fiduciary concerns once they have been aired in his courtroom.
“Although NAI’s execution of consents to implement the 90% Bylaw within hours of the court’s hearing on the instant motion belies defendants’ contention that plaintiffs’ concerns about Ms. Redstone are hypothetical or speculative, I am not convinced that the harm plaintiffs fear would be irreparable. To the contrary, the court has extensive power to provide redress if Ms. Redstone takes action(s) inconsistent with the fiduciary obligations owed by a controlling stockholder.”
Bouchard also observed that “no precedent has been cited in which this (or any other court) has granted such relief.”
CBS vowed to continue to press its claim that National Amusements Inc. (NAI) is violating its fiduciary duty to all CBS stockholders with its recent actions. CBS vowed that the meeting would proceed as planned despite the move on Wednesday by NAI to change the bylaws to require a 90% supermajority vote of the board of directors for decisions such as the proposal to dilute NAI’s voting power in the company.
“The judge today found that the allegations in our lawsuit ‘are sufficient to state a colorable claim for breach of fiduciary duty against Ms. Redstone and NAI as CBS’s controlling stockholder.’ We could not agree more,” CBS said in a statement. “While we are disappointed that the judge did not grant a TRO, the ruling clearly recognizes that we may bring further legal action to challenge any actions by NAI that we consider to be unlawful, and we will do so. We remain confident that we will prevail in the lawsuit previously filed by CBS and the members of its Special Committee.
The legal war erupted on Monday when CBS Corp. filed a lawsuit against National Amusements, Inc. (NAI) accusing it and Shari Redstone of breaching its fiduciary duty to CBS shareholders by pushing for the merger of CBS Corp. and Viacom, the media conglom that NAI also controls. CBS has been cool to the merger on strategic grounds, given Viacom’s weaknesses.
The sides squared off at a hearing Wednesday over CBS Corp.’s request for a temporary restraining order barring NAI from replacing CBS board members, or making changes to the company’s charter and bylaws before a judge can weigh in on the merits of CBS’ suit. As part of the legal maneuver, CBS has proposed that board members vote on a plan to issue a special stock dividend that would have the effect of diluting NAI’s voting shares from 79.5% to about 17%.
CBS sought a restraining order barring NAI from blocking that meeting. About a half-hour before Wednesday’s hearing was scheduled to start, NAI issued a change to the bylaws requiring a 90% majority of board members to approve the issuance of dividends or changes to the CBS bylaws. Shari Redstone serves on the 14-member CBS board, as does Robert Klieger, the Redstone family’s lawyer. Two “no” votes on the dividend would be enough to deprive the motion of a 90% supermajority.
CBS intends to hold the today’s vote to demonstrate the level of support on the board for the proposed stock dividend. CBS in its lawsuit pledged to not act on the vote while the legal process is unfolding.
“This dividend would more closely align economic and voting interests of CBS stockholders without diluting the economic interests of any stockholder,” CBS said in its statement.
As of midday, CBS was planning to also proceed with the annual shareholders meeting on Friday.
CBS v NAI ruling on TRO by gmaddaus on Scribd
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