Delaware Judge Deals Major Blow to CBS in Dispute with Chief Shareholder

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National Amusements Inc. - the Norwood-based cinema company led by Redstone that acts as an investment vehicle for her family fortune - has controlling stakes in CBS and Viacom, a vestige from when both were part of the same conglomerate built by her father, Sumner Redstone.

Deadline has learned that CBS Board Vice-Chair Redstone plans to attend the board meeting in person this afternoon.

But the judge's ruling on Thursday may nullify Redstone's recent action.

But CBS is not going to recognize the by-laws' change when its board meets 5 p.m. on Thursday to vote on the dilutive measure.

Less than an hour before Wednesday's court hearing, NAI moved to change CBS' by-laws to require a super-majority vote - or a 90 percent vote, that is 13 of the 14 CBS board members - to allow such a dividend.

"CBS management and the special committee can not wish away the reality that CBS has a controlling shareholder", the company said in a statement. The Company believes that the written consents delivered by NAI purporting to amend the Company's bylaws are neither valid nor effective.

Chancellor Andre Bouchard says that CBS does have a good case.

If the board strips Redstone's controlling stake, CBS and Captain Moonves will be free to woo new suitors in place of Viacom. The court's ruling today represents a vindication of National Amusements' right to protect its interests.

The development comes after CBS, now led by CEO Leslie Moonves, filed a surprise lawsuit on Monday that alleges Redstone has breached fiduciary duties in her alleged attempt to force a merger between CBS and Viacom. Finally, Letko Brosseau & Associates Inc. lifted its stake in shares of CBS by 170.0% in the 1st quarter. CBS's rating of a "Buy" has been discontinued. CBS owns the most-watched television network in the USA and one of the world's largest libraries of entertainment content, making its brand - "the Eye" - one of the most-recognized in business.

NAI, in a statement, said it is pleased the court denied the attempt of CBS' special committee "to deprive a shareholder of its fundamental voting rights".

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.

According to court documents, the special committee had determined on Sunday night that the deal was not in the best interest of CBS or its shareholders. The court said the restraining order wasn't necessary because the company can legally challenge board maneuvers from Redstone. The family's holding company, National Amusements Inc. controls almost 80% of the voting power at CBS.

Viacom's stock, meanwhile, tumbled on the news of CBS's lawsuit and has yet to recover - suggesting some market concern that a merger might not happen.

The proposal to dilute the voting power of the controlling stockholder is audacious. The board members said they were seeking a temporary restraining order to stop Redstone "from interfering" in Thursday's vote.

CBS shares were down 6.5 percent at $50.32 soon after the decision was announced.

The clearest precedent, he said, "expressly endorsed" a controller's right to pre-emptively protect its interest.

To view the full article, register now. The five independent directors-Gary L. Countryman, Charles K. Gifford, Bruce S. Gordon, Linda M. Griego and Martha L. Minow- are represented by attorneys from Weil, Gotshal & Manges in NY.

The Redstones and National Amusements are represented by Cleary Gottlieb Steen & Hamilton in NY and Potter Anderson & Corroon in Wilmington.

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