CBS' move to get a temporary restraining order placed on Shari Redstone's National Amusements, which controls 80% of the voting shares in CBS, has been denied. It then dismissed CBS efforts to prevent such a transaction as "pure pretext".
"CBS management and the special committee can not wish away the reality that CBS has a controlling shareholder", the company said in a statement. "In light of the board's action today, that action was plainly necessary, and it is valid".
The CBS board of directors meets Thursday, after its controlling shareholder changed board rules to maintain power.
If the board strips Redstone's controlling stake, CBS and Captain Moonves will be free to woo new suitors in place of Viacom. In a statement, CBS signaled that it may pursue further legal action against National Amusements.
The current dustup between CBS and National Amusements arose after Shari Redstone earlier this year (and for the second time in two years) urged CBS and Viacom, which National Amusements also controls, to merge.
The bylaw change came just an hour before the hearing in DE to consider CBS' request for a temporary restraining order against the Redstones - a move that seemed to startle even the judge overseeing the case.
CBS said its newly declared dividend would be "conditioned on a final determination by the DE courts", including the exhaustion of all appeals. Under Delaware law, CBS would still be able to challenge Wednesday's bylaw changes, he said.
CBS said it was disappointed but said it would continue its fight.
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Lifting the TRO handed CBS CEO Moonves an unsavory defeat and set the stage for an even more acrimonious court showdown.
The ruling is "a vindication of National Amusements' right to protect its interests", NAI 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.
Investor enthusiasm spiked Monday - at one point during the day, shares were trading up 6% to $55.31 - on news that CBS had gone to court seeking protection from Redstone, whom the network claimed might replace board members or take other actions to force a merger with corporate sibling Viacom. After Thursday's court decision, it said: "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".
After today's ruling, CBS stock dropped to $50.23 before recovering slightly to close at $51.61 today.
CBS' board was planning to issue a dividend that would dilute Redstone's preferred stock voting power to 17 percent from the current 80 percent. The media titan can not speak, and his daughter has taken control over the company holdings - and driven the move to merge CBS and Viacom.
Bouchard seemed to be referencing Redstone's last-minute move to throw a wrench in the CBS plan. Meanwhile, CBS accused Redstone of eschewing a third-party offer for the company and refusing to submit the suggested deal with Viacom to a stockholder vote.
Although Delaware court Chancellor Andre Bouchard said in the ruling there was no legal precedent for granting CBS's request for a restraining order, he said the company could challenge National Amusements in court if it takes actions that could harm shareholders.