CBS Corp.'s controlling shareholder fired back Tuesday over a board attempt to dilute the shareholder's stock voting power, the latest move in an escalating legal battle for control of the media company.
In complaint filed in Delaware's Chancery Court, National Amusements Inc. argues that a CBS board vote to approve a dividend that would drastically reduce NAI's voting stake in CBS was invalid. NAI claims the vote violated CBS's bylaws and corporate charter, and that CBS board members violated their fiduciary duties to stockholders. It also argues that the vote was based on recommendations of a special board committee that had exceeded its authority.
"It is undisputed that the director defendants' actions are unprecedented under Delaware law," NAI attorneys wrote.
The filing comes after CBS asked a Chancery Court judge last week to declare that the board vote was "effective and permissible."
"Today's reactive complaint from NAI was not unexpected," CBS said in a statement. "The amended complaint filed last week by CBS and its special committee details the ways in which NAI misused its power to the detriment of CBS shareholders, and was submitted after careful deliberation."
The legal dispute centers on a special dividend approved by the CBS board that would decrease NAI's voting stake in CBS from roughly 80 percent to about 20 percent.
The board vote came only after NAI, led by the daughter of billionaire media mogul Sumner Redstone, submitted documents to CBS decreeing that any dividend must be approved by a "supermajority" of its 14-member board, a threshold that was not met.
CBS contends that NAI's purported bylaw amendments are invalid and, under federal securities law, were not effective at the time of the board meeting.
CBS, led by CEO and Chairman Les Moonves, is pushing back against pressure by National Amusements to merge with Viacom, which also is controlled by NAI. National Amusements argues that CBS's actions are based on unsubstantiated claims that NAI was interfering with company management, and purported threats of a forced merger based on unsourced media reports and conjecture.
"The only cogent, but manifestly improper, explanation for the director defendants' unprecedented action is that Leslie "Les" Moonves, CBS's long-time CEO, has tired of having to deal with a stockholder with voting control," NAI attorneys wrote.
"Mr. Moonves apparently gave the director defendants an ultimatum: Either you remove NAI's voting control, or I resign," they added. "This ultimatum came against the backdrop of a $180 million "golden parachute" in Mr. Moonves's employment agreement that had been adopted without discussion or approval of the full board, with the intended purpose of entrenching Mr. Moonves in his position as CEO."
The CBS board vote came after the company unsuccessfully sought a restraining order in conjunction with a May 14 lawsuit alleging that NAI was breaching its fiduciary duties to CBS and other shareholders and trying to undermine the authority of its management and board of directors.
CBS and Viacom were once part of the same company, known as Viacom, but were split in 2005 into separate entities, both controlled by Sumner Redstone. Shari Redstone has been pushing to reunite the companies under one corporate umbrella, but a CBS special board committee concluded that a merger would not be in the company's best interest.
In refusing to grant CBS a restraining order, Chancellor Andre Bouchard — who called the dividend proposal an "extraordinary measure" — noted that the company could still file a court challenge if NAI takes actions inconsistent with its fiduciary obligations to the company and to other shareholders.