CBS Corp. shares tumbled right at 11:30am Eastern on Thursday, as investors reacted strongly to the decision by Delaware Court of Chancery Judge Andre Bouchard to deny a request for a temporary restraining order against National Amusements Inc. — the majority shareholder of both CBS and Viacom, controlled by Shari Redstone and her family.
On exceptionally heavy volume of 11.97 million shares, CBS shares were down by 4.1%, to $51.61. Average trading volume for CBS is 3.75 million shares.
It’s a “recovery” from where CBS stock sank to at 12:10pm Eastern: $50.03.
CBS shares are presently on the lower end of its 52-week cycle, with a year-long low (from May 17, 2017) of $47.54 and a high of $68.75, seen in late July 2017.
Based on that summer of ’17 performance, CBS was given a 1-year target price of $67.96 by a consensus of Wall Street analysts.
The restraining order technically prevented CBS Corp. from holding a vote on a special dividend severely diluting Redstone’s voting power. As RBR+TVBR reported Monday, CBS sought to prevent National Amusement from interfering by convening a special meeting of the Board of Directors, at which the directors were to consider declaring a dividend of shares of Class A common stock to all of the company’s Class A and Class B stockholders, “as is permitted under CBS’s charter.”
The attempt to weaken NAI’s power in CBS triggered an unprecedented back-and-forth battle between Redstone’s group and CBS Corp. On Wednesday (5/16), National Amusements responded by saying the proposed CBS dividend, which would slash the voting power of Ms. Redstone, would be invalid. As such, NAI issued an amendment to CBS Corp.’s bylaws — a move that would negate any attempts to weaken Redstone’s influence. The amendment requires 90% of the CBS board to approve the stock dividend; this is not likely to happen as two board members are allied with NAI.
Given the fierce escalation of the battle between NAI and CBS Corp., Judge Bouchard stepped in. Today (5/17), he determined that CBS would not face irreparable harm without a restraining order as it has other ways to pursue a legal challenge to NAI should Ms. Redstone improperly remove CBS directors — something CBS greatly fears will occur. Bouchard said CBS has “extensive power to provide redress if Ms. Redstone takes action inconsistent with the fiduciary obligations owed by a controlling shareholder.”
(The Board went ahead with a vote Thursday afternoon, voting 11-3 to declare the dividend, diluting National Amusements’ voting interest from approximately 79% to 17%.)
This sets the stage for a prolonged fight. As Bouchard said, NAI’s right to protect their controlling interest in CBS was valid, and has legal precedent. Yet, CBS’s claims are “sufficient to state a colorable claim for breach of fiduciary duty against Ms. Redstone and NAI as CBS’s controlling shareholder.”
CBS “could not agree more” with that assessment. In a statement, the company said, “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 NAI that we consider to be unlawful, and we will do so.”
NAI was also happy with the ruling from Delaware, saying in its own 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.”