CBS renews NAI fight, seeks court approval of dilution vote

CBS Corp. asked a Delaware judge on Wednesday to bless a move by its board to dilute the stock voting power of its controlling shareholder, the latest step in an ongoing legal battle for control of the mass media company.

In amending a lawsuit filed earlier this month, CBS attorneys asked Chancellor Andre Bouchard to rule that a board vote last week to approve a dividend that would drastically reduce the voting stake of National Amusements Inc. was "effective and permissible."

The special dividend approved by the board would decrease NAI's voting stake in CBS from roughly 80 percent to about 20 percent.

The board vote came 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 argues that the purported bylaw amendments are invalid and, under federal securities law, were not effective at the time of the special board meeting.

"This board action was a proper exercise of business judgment," CBS attorneys wrote in Wednesday's court filing.

NAI has called the board vote "pure pretext."

"National Amusements exercised its legal right to amend CBS' bylaws and this change was effective immediately," the company said in a prepared statement Wednesday. "We are confident the court will uphold NAI's action."

Last week's board vote came after Bouchard refused to grant CBS a restraining order against NAI. CBS sought the restraining order in conjunction with a lawsuit filed May 14 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, 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.

According to Wednesday's court filing, Moonves told fellow board members last week that NAI's interference with management, disparagement of CBS employees and attacks on the independence of directors have had a negative effect on the company.

"Mr. Moonves said that he did not think he could successfully lead the company under these circumstances. He said that the soul of CBS and its success derived from the independence of its board and management," CBS attorneys wrote. "He concluded that his duty to all stockholders led him to believe the stock dividend was necessary."

CBS and Viacom were once part of the same company, known as Viacom, but were split in 2005 into separate entities, both controlled by Redstone. His daughter, Shari Redstone, has been pushing to reunite the companies under one corporate umbrella, but a CBS special board committee concluded last week that the merger would not be in the company's best interest.

"As of the filing of this amended verified complaint, Ms. Redstone has made no commitment that she will not replace CBS's independent board with directors who would be willing to approve a CBS merger with Viacom and otherwise do her bidding," CBS attorneys wrote.

While proceeding with the board vote, CBS postponed an annual shareholder meeting that had been scheduled for last Friday while the legal battle plays out in court. The company also has acknowledged that payment of the special dividend was conditioned on court approval.

In refusing to grant CBS a restraining order, Bouchard 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.

"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," Bouchard noted in his ruling.