In Part I, I explained how CBS’ board of directors and the Redstone family - who control CBS - have been battling it out both in the boardroom and in the courtroom. CBS wants to eliminate Redstone’s control of CBS so they can sell the company to a third-party and the Redstones want to maintain control so they can merge CBS with Viacom, another company that they control.
The battle shifted from the boardroom to the courtroom a couple of weeks ago when CBS’ board tried to dilute the Redstone’s control of CBS by passing a special share dividend. But before that vote could occur, the Redstone family amended CBS’ bylaws to require a 90% vote in order to declare such a dividend. In the ensuing court fight, CBS argued that the amended bylaw is invalid because it is inequitable and impermissible under Delaware corporate law, and the Redstones argued that the board action is invalid because CBS’ bylaws were amended before the vote took place.
Shareholders Join the Battle
Last week, the Westmoreland County Employees Retirement System – shareholders in CBS - filed a new lawsuit against the Redstones.
To understand the significance of the Westmoreland lawsuit, it’s helpful to know that CBS has two classes of common stock: Class A voting shares belonging to the Redstone family and Class B non-voting shares owned by all other shareholders, including Westmoreland.
Like the CBS board of directors, Class B shareholders, including Westmoreland, want to strip the Redstones of their voting control of CBS so the company can be sold and CBS shareholders can profit. The problem, of course, is that the Redstone family owns all the voting shares and thus controls the company.
To try to get around this ownership and control by the Redstones, Westmoreland, in its class action lawsuit, alleges that the Class B shareholders are “entitled” to that special dividend that the CBS board declared, a dividend that would give Class B shareholders voting rights. Westmoreland argues a somewhat novel concept that CBS’ Certificate of Incorporation is a contract between CBS and its shareholders and that the Redstone family has breached it and their fiduciary duties by using their control position to nullify the share distribution through a bylaw amendment. According to Westmoreland, the Redstones “abused their control to undermine the independent corporate governance of CBS” thus “interfering with the Class B shareholders’ right to the special dividend.”
This story keeps getting more interesting. As I previously wrote, stay tuned…