You Think You Have a Rebellious Board of Directors?
In the news lately is the attempt by the CBS board of directors to wrest control from the Redstone family, a battle that is not likely to end soon.
The Redstones control both CBS and Viacom through the family’s National Amusements, Inc. (NAI) and want to merge the two companies. NAI believes that the merger is needed to gain scale and compete with the likes of video-streaming companies like Netflix and Amazon.
The CBS board of directors, however, opposes the merger because it believes that it would negatively impact CBS’ interests and prevent CBS from “unlocking significant shareholder value.” That’s code for CBS’ desire to allow itself to be sold to a third party such as Verizon who approached CBS about a year ago, apparently for that very purpose.
The CBS board’s opposition to the merger erupted into open warfare when CBS tried to prevent the merger by scheduling a board meeting to approve a special dividend that would have the effect of cutting the Redstone family’s stake in CBS from 79% to 17%. Before that vote could take place, NAI amended the CBS bylaws to require a supermajority of 90% to approve the issuance of a special dividend. Shari Redstone and her lawyer make up two of the CBS board’s 14 members; their “no” votes on the dividend would be enough to deprive the motion of a 90% supermajority.
To counter NAI’s move, a week ago Monday the CBS Board filed suit in the Delaware Chancery Court accusing NAI of breaching its fiduciary duty by pushing for the merger. CBS sought a temporary restraining order barring NAI from, among other things, amending CBS’ bylaws. Last Thursday, the Delaware court denied the TRO, ruling that unless CBS could show that the bylaw amendment was invalid or unfair, the court could not set it aside.
The Redstones may have won that legal skirmish but that ruling doesn’t end the corporate battle of the titans. Litigation over the CBS board’s attempt to wrest control from the Redstones is likely to continue for some time.