CBS Independent Class A Holder Questions Dilution Plan, Source Says

Provided by Mergermarket

One of the largest independent investors in CBS Class A shares [NYSE:CBS.A] is concerned about the board of directors’ plan to dilute the voting power of the Class A shares, said a person familiar with the shareholder.

The investor, which is also one of the largest holders of Viacom [NYSE:VIA.A] shares, is evaluating its options, the person familiar said. “We don’t like the potential of being diluted without compensation,” the person said.

Earlier this week, the CBS board’s special committee announced a plan to declare a dividend of Class A stock intended to dilute the voting control of National Amusements from 79% to 17%. The dividend would be payable to holders of both Class A and Class B (NYSE:CBS) stock, as permitted by the CBS charter.

National Amusements (NAI), now led by Shari Redstone, is the controlling investor of CBS and Viacom, and is trying to recombine the two media companies, which were separated in 2005. The CBS special committee opposes that recombination.

CBS is holding a special meeting late Thursday afternoon to vote on the dividend. The company filed suit against NAI in Delaware Chancery Court to prevent Redstone from interfering in that vote.

In response to the suit, NAI quickly changed its bylaws so that issuance of the dividend would require a 90% supermajority vote to go into effect.

In a ruling Thursday morning, Delaware Judge Andre Bouchard denied CBS’s request for a temporary restraining order. Bouchard said CBS failed to sufficiently prove its claim of irreparable harm. This was especially true, Bouchard explained, given the “unprecedented” nature of CBS’s actions.

Bouchard indicated that he could intervene if NAI takes actions that he considers to be violating its responsibilities to other shareholders.

Although the independent shareholder is “not necessarily” in full agreement with NAI’s position, it sees CBS’s decision to offer the dividend, and the lawsuit, as “holding a gun to [Redstone’s] head,” the person familiar said.

A statement issued by the CBS board after Thursday’s ruling is a further source of irritation for the investor, the person familiar went on to say.

In that release, the board noted: “While we are disappointed that the judge did not grant a TRO, 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.”

The independent investor characterizes this language to mean that CBS is “doubling down” on its claims, rather than working to find some grounds for reconciliation with NAI, as the shareholder had hoped.

For its part, NAI stated Thursday: ““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.”

CBS, Viacom and NAI did not return requests for comment.

By David B. Wilkerson in Chicago

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