May 17, 2018

Court rules for Shari Redstone, against CBS

Photo by Tara Ziemba/Getty Images

A Delaware judge has just ruled against CBS, in its effort to strip company control from Shari Redstone's National Amusements Inc.

Why it matters: This could pave the way for a merger with Viacom, and also lead to major management changes at CBS (whose stock is down more than 6% on the ruling).

Just yesterday, CBS execs were projecting confidence.

A key quote from the judge:

"In my opinion, particularly given CBS’s proclaimed commitment to independent board governance, these allegations are sufficient to state a colorable claim for breach of fiduciary duty against Ms. Redstone and NAI as CBS’s controlling stockholder."

NAI's statement:

“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. 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.”

CBS' statement:

"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. 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.
As previously announced, the CBS Board will hold a meeting at 5PM today to consider declaring a dividend of shares of Class A common stock to all of the Company’s Class A and Class B stockholders, as is permitted under CBS’ charter. This dividend would more closely align economic and voting interests of CBS stockholders without diluting the economic interests of any stockholder.”

What's next? CBS likely will pursue further litigation but, for now, its bylaws require a 90% supermajority to dilute Redstone. Given the board dynamics, it won't meet that threshold.

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