CBS Corporation, et al.
National Amusements, Inc., et al.
Submitted: May 16, 2018
letter constitutes the court's ruling on plaintiffs'
motion for a temporary restraining order that was argued
yesterday afternoon. Although a more extensive discussion of
the issues would be desirable, the need for an immediate
decision necessitates brevity. For the reasons explained
below, the motion is denied, and the order that was entered
at the conclusion of yesterday's hearing to protect the
court's jurisdiction pending this ruling is hereby
consist of CBS Corporation and five independent members of
its Board of Directors (the "Board") who serve on a
Special Committee of the Board that was formed to consider a
potential merger of CBS and Viacom, Inc.
consist of Shari Redstone, her father Sumner Redstone,
National Amusements, Inc. ("NAI"), NAI
Entertainment Holdings LLC, and the Sumner M. Redstone
National Amusements Trust. Ms. Redstone, through her control
of NAI, effectively controls approximately 79.6% of the
voting power of CBS, although NAI owns only approximately
10.3% of the economic stake in CBS.
2005, CBS and Viacom were part of one company, which also was
called Viacom. In 2005, CBS and Viacom were split into the
standalone entities they are today. CBS has two classes of
stock, both of which are publicly traded on the New York
Stock Exchange. The Class A common stock has voting power;
the Class B common stock does not. Viacom has a similar dual
class structure that gives NAI a similar level of voting
to the complaint, Ms. Redstone began to pursue a merger of
CBS and Viacom in 2016 on the heels of removing Viacom's
then-CEO and replacing a number of directors on Viacom's
board. The proposed deal allegedly foundered because Ms.
Redstone would not agree to "the combined CBS/Viacom
entity [being] managed as a non-controlled public company
with a majority-independent board for at least the next five
the next two years, Ms. Redstone took various actions, some
of which are discussed below, that "have led the Special
Committee to conclude that she presents a significant threat
of irreparable and irreversible harm to the Company and its
stockholders." By early January 2018, Ms. Redstone again
formally approached the boards of CBS and Viacom and pressed
for a combination of the two companies. In response, the
CBS and Viacom boards each formed special committees to
evaluate and negotiate a potential combination. During
negotiations, Ms. Redstone allegedly "refused to agree
to typical public company governance or submit any potential
transaction to a vote of all of the unaffiliated public
stockholders of CBS."
Sunday, May 13, 2018, the Special Committee determined that a
CBS/Viacom merger is not in the best interests of CBS
stockholders, other than NAI. The Special Committee contends
that, in response to this decision, Ms. Redstone may
"immediately replace members of the Board and use the
new directors to force through the merger . . . and make
other changes to the CBS organizational documents" to
impede the Board.
request of the Special Committee, CBS scheduled a special
board meeting to begin at 5 p.m. on May 17, 2018 to consider
potential responses to Ms. Redstone's
conduct. At that meeting, the Special Committee
intends to recommend that the Board approve a stock dividend
of Class A voting shares to all holders of Class A voting and
Class B non-voting shares (the "Dividend
Proposal"). If approved, the dividend would dilute
NAI's voting power from approximately 80% to 17%, but
would not dilute its economic stake or the economic stake of
any other CBS stockholder. By any reckoning, the Dividend
Proposal is an extraordinary measure, presumably reflective
of the depth of concern the independent members of the
Special Committee have about Ms. Redstone's intentions.
if approved by the Board, "CBS will not issue any Class
A shares distributable in the stock dividend, or otherwise
cause that dividend to become effective, pending further
order of the Court." In other words, the stock
dividend would be conditional "unless and until the
Delaware courts decide on a record whether it is legally and
Monday, May 14, 2018, plaintiffs filed their complaint and a
motion for a temporary restraining order. The complaint
contains three claims. Count I asserts that NAI, Mr.
Redstone, and Ms. Redstone have breached their fiduciary
duties as the controlling stockholder of CBS. Count II
asserts a claim for estoppel against these same defendants.
Count III asserts a claim for aiding and abetting against the
remaining two defendants. In their motion, plaintiffs request
that the court temporarily restrain defendants and their
(a) interfering with the composition of CBS's Board
(other than electing the slate currently nominated for
election at CBS's May 18 annual meeting of stockholders)
or modifying CBS's governance documents until any actions
approved at the special board meeting called for May 17
(b) taking any other actions to interfere with any decisions
to be taken by CBS's Board at the May 17 special board
(c) interfering with the issuance of any shares payable in a
precedent has been cited in which this (or any other court)
has granted such relief.
two hours after the complaint was filed on May 14, the court
scheduled a hearing on the motion for a temporary restraining
order to begin on Wednesday, May 16 at 2 p.m. Approximately
one hour before the hearing, defendants filed a letter
informing the court that NAI had executed and delivered
consents to amend CBS's bylaws to, among other things,
require approval by 90% of the directors then in office at
two separate meetings held at least twenty business days
apart in order to declare a dividend (the "90%
Bylaw"). Given that CBS's Board currently consists
of fourteen members, three of which are NAI-designees, the
90% Bylaw (if valid) would allow NAI to block enactment of
the Dividend Proposal.
light of NAI's act of self-help before the court could
hear plaintiffs' motion for a temporary restraining
order, the court entered the form of order submitted by
plaintiffs in support of their motion at the conclusion of
yesterday's hearing as an interim measure to protect the
court's jurisdiction until it could rule on the motion
(the "Interim Order").
temporary restraining order may be issued when the movant
demonstrates that: " it has a colorable claim, 
faces a likelihood of imminent, irreparable harm if relief is
not granted, and  will suffer greater hardships if the TRO
is not granted than the defendants would if the relief were
granted." The "colorable claim"
requirement means that a plaintiff must state
"essentially a non-frivolous cause of
make a threshold argument that a stronger showing should be
required on the merits of plaintiffs' motion for two
reasons. First, defendants contend that plaintiffs should be
required to establish actual success on the merits on the
theory that a temporary restraining order would not just
maintain the status quo. Rather, according to defendants, a
temporary restraining order would effectively provide
plaintiffs with "final, irreversible relief"
because, if the temporary restraining order were granted,
defendants would lose forever the right to take corporate
action before the Board votes on the Dividend
Proposal. A flaw in this argument is that the
Dividend Proposal would not be "irreversible" if
approved by the Board. To the contrary, as noted above, it is
structured not to become effective until the resolution of
any judicial challenge. The real issue underlying
defendants' argument is who-a controller or a board of
directors- should have "first-mover" advantage to
take action and define the contours of a fight between them.
I touch upon this issue briefly in my consideration of the
balance of the equities.
defendants contend that plaintiffs at least should have to
satisfy the reasonable likelihood of success standard
necessary to obtain a preliminary injunction on the theory
that plaintiffs delayed in seeking relief. I disagree with
this contention. On the record before me, it appears that
plaintiffs acted in a sensible and timely manner by filing
their motion promptly after the Special Committee concluded
on May 13 that a CBS/Viacom merger was not in the best
interests of the Company, when the prospect of retributive
action by the controlling stockholder became acute.
Colorability of Plaintiffs' Claims
premise of the complaint is that, since its separation from
Viacom in 2005, CBS has held itself out as a company
committed to independent board governance in order to assuage
stockholder concerns about investing in a company controlled
by the Redstones-the so-called "Redstone discount."
To that end, CBS publicly has "touted the independence
of its Board" and "represented that CBS was-and
would be-governed by an independent Board despite being a
'controlled company.'" For example, CBS stated
in its registration statement in 2005, and repeated
materially identical representations in its proxy statements
every year between 2006 and 2018, that "a majority of
the CBS Corp. directors must be independent, as
'independence' is defined in the NYSE listing
standard and in the CBS Corp. Guidelines."
according to plaintiffs, the fact that the certificate of
incorporation of CBS (and Viacom), unlike those of some other
controlled companies, authorizes the Board to approve a stock
dividend that would dilute NAI's voting power is itself
evidence of CBS's commitment to independent board
governance. Defendants vigorously dispute this ...