(CN) – A Delaware judge denied CBS’ request for a temporary restraining order against controlling shareholder Shari Redstone, setting the stage for a possible board shake-up over a proposed merger with Viacom.
Delaware Chancery Court Chancellor Andre Bouchard issued his ruling shortly before noon Thursday, and CBS immediately announced it would proceed with a planned board of directors meeting and vote later this evening.
The CBS board sought to prevent Redstone, whose company National Amusements owns controlling shares of CBS and Viacom, from forcing out members before Thursday night’s vote on issuing a stock dividend.
The proposed dividend would decrease National Amusements’ voting power from 80 percent to 17 percent and give the CBS directors more independence.
National Amusements is controlled by Redstone and CEO Sumner Redstone, her father. The movie theater company has a 10 percent economic stake in CBS, but 80 percent of the voting power.
“We are pleased by the court’s decision to deny CBS and its special committee’s unprecedented motion to try to deprive a shareholder of its fundamental voting rights,” the company said in a statement. “The court’s ruling today represents a vindication of National Amusements’ right to protect its interests. As we intend to demonstrate as the case proceeds, the actions of CBS and its special committee amount to a grievous breach of fiduciary duties and show no regard for the significant risk posed to CBS and its investors.”
Earlier this week, CBS and board members filed a lawsuit to prevent National Amusements from forcing a merger with Viacom, the cable conglomerate. A special committee already decided on May 13 to not proceed with the merger, but believed Redstone would overrule their decision.
“Ms. Redstone’s recent actions have led the special committee to conclude that she presents a significant threat of irreparable and irreversible harm to the company and its stockholders,” the complaint states.
The lawsuit cites numerous examples of Redstone inferring with the board’s actions, such as secret talks with potential replacements for CEO Leslie Moonves and refusing another potential merger without board approval.
CBS asked the judge to issue a restraining order to stop any interference with the composition of the board or modifying any bylaws affecting voting power.
Yet Bouchard rejected CBS’ request.
“No precedent has been identified, however, in which the court has ever entertained, much less sanctioned, the type of request for relief that plaintiffs make here,” Bouchard wrote. “In and of itself, this suggests that a truly extraordinary set of circumstances would be necessary to grant such a request.”
In his ruling, Bouchard acknowledged the “tension” between the controlling stockholder’s rights and those of an independent board of directors threatened with removal. He also cautioned that the court has the power to reverse any bylaw changes by National Amusements if they violate fiduciary duty to stockholders and or wrongfully remove board members.
“While we are disappointed that the judge did not grant a temporary restraining order, the ruling clearly recognizes that we may bring further legal action to challenge any actions by National Amusements that we consider to be unlawful, and we will do so,” CBS Board of Directors said in a statement. “We remain confident that we will prevail in the lawsuit previously filed by CBS and the members of its Special Committee.”
An annual meeting of the CBS board of directors is scheduled for Friday.