Corporate Law News

CBS-Viacom Merger Draws Preliminary Shareholder Challenge (1)

Oct. 15, 2019, 9:47 PMUpdated: Oct. 15, 2019, 10:52 PM

CBS Corp. was hit with a Delaware lawsuit Oct. 15 demanding corporate records that will allegedly show media mogul Shari Redstone sold shareholders out by forcing through its merger with Viacom Inc., which she also controls.

CBS spun off from Viacom in a 2006 deal that splintered the entertainment giant controlled for decades by Sumner Redstone, Shari’s father, through National Amusements Inc. NAI still owns about 80% of each company.

Shari Redstone seized control of NAI in 2016 by taking over the board of her father’s trust, and she’s been determined to put the former Viacom empire back together, according to the complaint. The suit was filed in the Chancery Court by a retirement fund that holds nonvoting CBS stock.

Despite a successful corporate coup by Redstone at Viacom, a CBS special committee repeatedly thwarted her merger efforts, the suit says. The committee also sued Redstone after news of the talks leaked, allegedly costing class B shareholders nearly $9 billion.

The case settled with relatively little publicity while CBS was rocked by a sexual misconduct scandal involving ex-CEO Les Moonves, who opposed the deal before his ouster, according to the complaint.

The settlement called for major board turnover, and Redstone supported all six new directors, the suit says. It also required Redstone to wait two years before resurfacing the merger unless she got two-thirds support from independent board members. But several of those directors later resigned, and two weren’t replaced, according to the complaint.

The “weakened” board allegedly proved no match for Redstone, who “dominated it.” CBS and Viacom announced a $30 billion deal in August, sending CBS shares plummeting again, the suit says. The merger is set to close in December.

“Shari Redstone will force this merger through with NAI’s voting control,” the suit says. “The CBS minority public stockholders will have no meaningful vote.”

The pension fund plaintiff sent CBS a “narrowly tailored” demand for relevant corporate records, but CBS responded with an inadequate counteroffer, according to the complaint.

Cause of Action: Section 220 of the Delaware General Corporation Law.

Relief: An order requiring CBS to turn over relevant books and records.

Response: CBS declined to comment Oct. 15.

Attorneys: The retirement fund is represented by Pricket Jones & Elliott and Kessler Topaz Meltzer & Check.

The case is Bucks Cty. Emp. Ret. Fund v. CBS Corp., Del. Ch., No. 2019-0820, complaint filed 10/15/19.

To contact the reporter on this story: Mike Leonard in Washington at mleonard@bloomberglaw.com

To contact the editor responsible for this story: Jo-el J. Meyer at jmeyer@bloomberglaw.com