Court Rules for Redstone Family in CBS Fight
By Keach Hagey and Joe Flint
CBS Corp. has lost the first round in a battle to break free from its controlling shareholder, but the legal fight is far from over.
A Delaware judge on Thursday denied CBS's request for a temporary restraining order against the Redstone family that would have enabled the media company to strip its controlling shareholder of its voting power. The family's holding National Amusements Inc. controls nearly 80% of the voting power at CBS.
The court found CBS wouldn't face irreparable harm without a restraining order, because it has other avenues to pursue legal action if the Redstones remove directors improperly or try to force a merger of CBS with sister media company Viacom Inc. in a way that is detrimental to shareholders.
CBS said it still plans to hold a special board meeting at 5 p.m. on Thursday to consider the approval of a stock dividend that would dilute National Amusements' voting power to 17%. However, National Amusements amended the company's bylaws on Wednesday to require 90% of board members to approve such a move, a threshold that effectively gives it veto power.
In his ruling, Judge Andre Bouchard said legal precedent favored controlling shareholders' right to make pre-emptive moves to protect their power, but left the door open for CBS to continue its fight.
He wrote that CBS has "extensive power to provide redress if Ms. Redstone takes action[s] inconsistent with the fiduciary obligations owed by a controlling shareholder." The judge said the allegations made by CBS are "sufficient to state a colorable claim for breach of fiduciary duty against Ms. Redstone and NAI as CBS's controlling shareholder."
"We could not agree more," CBS said in a statement. "While we are disappointed that the judge did not grant a [temporary restraining order], 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."
The media company and its special committee of independent directors had filed a lawsuit this week against National Amusements, Shari Redstone and her father Sumner Redstone to try to prevent them from replacing the board and forcing a merger with Viacom. The request for a temporary restraining order was one step in that overall legal effort.
National Amusements said it was pleased by the court's ruling.
"The court's ruling today represents a vindication of National Amusements' right to protect its interests," it said in a statement. "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."
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