CBS Corporation v. National Amusements, Inc.

CBS Corporation and five of its independent directors on a special committee (plaintiffs) sued to block a merger proposed by controlling shareholders Shari Redstone, her father Sumner Redstone, her holding company National Amusements, Inc. (NAI), and the Sumner M. Redstone National Amusements Trust (defendants). Originally CBS and Viacom, Inc., were one company. They split into standalone entities with two classes of publicly traded stock, one with voting power and one without. Shari controlled about 80 percent of CBS’s voting stock through her control of NAI, even though NAI owned only about 10 percent of the economic stake in CBS. NAI had a similar level of voting control over Viacom. After removing Viacom’s former chief executive officer and replacing several of its directors, Shari began pursuing a merger of the two companies. The proposed deal allegedly foundered because Shari would not agree to the new entity being managed as a non-controlled entity with a majority of independent directors on its board for at least five years. Shari allegedly refused to agree to governance like a typical public company or to submit any proposed merger to a vote of all CBS stockholders. The board appointed the five independent directors to a special committee, which concluded that a merger was not in the best interests of stockholders other than NAI. The board scheduled a meeting for four days later to approve a stock dividend that would give both voting and non-voting shareholders voting shares, diluting NAI’s voting power from 80 percent to 17 percent, conditioned on court approval. Meanwhile, the board sued requesting a temporary restraining order to keep the controlling shareholders from removing directors, modifying governing documents, and interfering with the scheduled board meeting or issuance of the stock dividend.