This morning, CBS Corporation took the unusual step of suing its majority shareholder, Shari Redstone and her National Amusements, Inc. holding company, for breach of fiduciary duty. The lawsuit, CBS Corporation v. National Amusements, Inc., No. 2018-0342, filed in Delaware Court of Chancery, seeks a temporary restraining order (TRO) barring Redstone and National Amusements from ousting any of CBS’s Directors or changing CBS’s governing documents before its full Board of Directors meets on Thursday, May 17, 2018. The Directors are to consider a special dividend that would dilute National Amusements voting rights in CBS from about 80 percent to about 17 percent. As the holder of Class A shares, National Amusements holds about 80 percent of the voting rights, but its economic stake in CBS is only about 10.3 percent. Other shareholders hold Class B shares. Ultimately, the dilution of National Amusement’s voting rights appears intended to block Redstone’s on-going attempts to merge CBS with Viacom, Inc.
Although it is unusual for a corporation to sue its majority shareholder for breach of fiduciary duty, it is not unprecedented. In its Motion for TRO, CBS cites Hollinger Intern., Inc. v. Black, 844 A.2d 1022 (Del.Ch. 2004), arguing:
“The relief sought here is consistent with the relief sought in Hollinger, 844 A.2d 1022, in which this Court granted a corporation a preliminary injunction against a similar attempt by a controller to undo a strategic process with independent directors to which that stockholder had agreed. Black had ‘nearly absolute’ control over Hollinger through high-vote stock, although he had only 15% of the equity interest. Id. at 1033. Black violated an agreement with the board by threatening to sell one of Hollinger’s principal assets for his own benefit and taking steps to disable the independent committee that he had agreed to establish to run the “strategic process.” Id. at 1044-47. Then-Vice Chancellor, now-Chief Justice Strine enjoined Black’s proposed asset sale. Id. at 1092. 22.
“CBS is at risk of the same inequitable conduct — an unfair transaction forced on it by a controlling stockholder. As in Hollinger, Ms. Redstone’s controlling voting stake is disproportionate to her economic interest. As in Hollinger, Ms. Redstone faces a Special Committee and a majority independent Board who have proven they will stand up for the public stockholders and prevent her from using CBS in a manner contrary to the best interests of all stockholders. And as in Hollinger, there is a real risk that Ms. Redstone might remove the Board or otherwise frustrate Board action. In those circumstances, then-Vice Chancellor Strine granted an injunction against any action by the controlling stockholder that would harm the public stockholders and invalidated a bylaw amendment enacted by written consent that gave Black the ability to veto any action taken by Hollinger — which is exactly the same bylaw Ms. Redstone forced on Viacom in 2016 and may seek to force on CBS in the next three days. Compl. ¶ 63; Hollinger, 844 A.2d at 1092.” CBS Motion for TRO, at ¶¶ 21-22.
The Chancery Court is scheduled to hear the Motion for TRO on Wednesday, May 16, 2018.
A copy of the CBS’s Complaint may be found at: http://investors.cbscorporation.com/static-files/bbbc54bf-6ec2-44c7-812c-9175708a04b6
A copy of Plaintiffs’ Motion for a Temporary Restraining Order may be found at: http://investors.cbscorporation.com/static-files/55721f04-cb0c-41e9-8fa9-ac5f46d442d8
A copy of the Chancery Court decision in Hollinger Intern., Inc. v. Black, 844 A.2d 1022 (Del.Ch. 2004) may be found at: https://scholar.google.com/scholar_case?case=9909430372557304530&q=hollinger+v.+black&hl=en&as_sdt=4006&as_vis=1