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A Delaware judge refused Thursday to grant CBS Corp. a restraining order against its majority shareholder in a power struggle that could decide control of the company.
Following a hearing Wednesday, Chancellor Andre Bouchard said he could find no court precedent to grant the relief CBS sought in trying to prevent National Amusements Inc. from trying to thwart a board vote scheduled for later Thursday on a dividend that would dilute National Amusement’s stock voting power from 80 percent to 17 percent, effectively giving CBS independence.
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CBS sought the restraining order in conjunction with a lawsuit filed Monday alleging that National Amusements, led by the daughter of media mogul Sumner Redstone, was breaching its fiduciary duties to CBS and other shareholders and trying to undermine the authority of its management and board of directors.
NAI responded by rewriting the CBS company bylaws to require a “supermajority” to approve the dilutive dividend.
The legal filings come as CBS, led by CEO and chairman Les Moonves, pushes back against pressure by National Amusements to merge with Viacom, which also is controlled by National Amusements.
CBS and Viacom were once part of the same company, known as Viacom, but were split in 2005 into separate entities, both controlled by Sumner Redstone. Shari Redstone has been pushing to reunite the companies under one corporate umbrella, but a CBS special board committee concluded Sunday that the merger would not be in the company’s best interest.
While denying the restraining order, Bouchard noted that CBS could still file a court challenge if NAI takes actions that are inconsistent with its fiduciary obligations to the company and to other shareholders.
“Balancing the relevant considerations here implicates an apparent tension in our law between a controlling stockholder’s right to protect its control position and the right of independent directors — empowered … with broad authority to manage ‘the business and affairs’ of the corporation — to respond to a threat posed by a controller, including possible dilution of the controller,” Bouchard wrote.
The judge concluded that NAI had the stronger legal position. He cited a previous Delaware court ruling that said a controlling shareholder has a right to take a pre-emptive first move to protect its control interest in the face of company’s plan to dilute that voting control.
“Exercise of that right, of course, is subject to judicial review, which can afford full relief in this circumstance in my opinion to vindicate the interests of CBS and its stockholders, if appropriate,” Bouchard said.
NAI issued a statement saying the ruling vindicates its 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,” the statement read.
CBS officials noted that Bouchard found that the allegations in its lawsuit were sufficient to state a plausible legal claim for breach of fiduciary duty against Redstone and NAI.
“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,” the company said in a prepared statement.
CBS also confirmed that Thursday’s board meeting would take place as scheduled. It remains unclear, however, whether any decision to dilute NAI’s voting power would stand.
“By any reckoning, the dividend proposal is an extraordinary measure, presumably reflective of the depth of concern the independent members of the special committee have about Ms. Redstone’s intentions,” Bouchard noted in his ruling.
The judge declined to opine on CBS’s contention, vigorously disputed by NAI, that the company’s certificate of incorporation authorizes the board to approve a stock dividend that would dilute NAI’s voting power.
CBS shares fell more than 4 percent to $51.62 in afternoon trading.