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Court of Chancery Declines To Restrain Controller In Proposed Viacom-CBS Deal

CBS Corp., et al. v. National Amusements, Inc., et al., C.A. No. 2018-0342-AGB (Del. Ch. May 17, 2018) (Letter Op.)

Arising out of the highly-publicized dispute over the proposed transaction involving CBS and Viacom, each controlled by the Redstones, this decision is both front-page newsworthy and legally significant.  CBS and Viacom used to be one entity but split.  The Redstones retained voting control in each through a dual-class voting structure.  Later, the Redstones began pushing to merge the entities once again and both entities formed special committees to consider the proposal. 

After CBS’s special committee found the proposal was not in the company’s best interests, it grew concerned about how the Redstones would react.  To preempt the Redstones from removing the independent directors and forcing a deal on the minority stockholders, the committee proposed a special meeting of the board to consider a dividend that would dilute and deny the Redstones’ voting control over CBS, but one conditioned on the Delaware courts approving its legality. 

To protect this plan, the committee members initiated an action in the Delaware Court of Chancery against the Redstones and sought a restraining order to hold them at bay and prevent interference in the dividend plan—an unprecedented request.  In this letter decision, the Court declined to restrain the Redstones at this time.  While plaintiffs had shown a colorable claim for breach of fiduciary duty, they failed to show threatened, imminent irreparable injury absent the restraints.  Rather, the Court relied on its extensive power to provide redress if the Redstones ultimately decided to take some action inconsistent with a controlling stockholder’s fiduciary obligations with respect to the dividend plan.  Also notable is the Court’s balancing of the equities and its discussion of the apparent tension in Delaware law between a controlling stockholder’s right to protect its control position and the right of independent directors to respond to the threats posed by a controller, including through possible dilution.