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Kessler Topaz Secures Major Legal Victory in CBS Merger Litigation

January 29, 2021

On January 27, 2021, Vice Chancellor Joseph R. Slights III of the Delaware Court of Chancery issued an opinion in In re CBS Corporation Stockholder Class Action and Derivative Litigation, Consolidated C.A. No. 2020-0111-JRS, sustaining all but one of the claims asserted by Co-Lead Counsel KTMC on behalf of our client, Co-Lead Plaintiff Bucks County Employees Retirement Fund.  In the 157-page opinion, which contains references to a wide array of Delaware case law and legal scholarship, as well as such diverse sources as Rolling Stone magazine, Game of Thrones author George R.R. Martin, and Greek mythology, Vice Chancellor Slights holds that the stockholder plaintiffs adequately pled their claims against CBS’s (now known as ViacomCBS) Board Chair and controlling stockholder Shari Redstone, other members of the CBS board of directors, and former CBS President Joseph Ianniello challenging their conduct in connection with the December 2019 merger of CBS and Viacom, Inc., also controlled by Ms. Redstone. 

Plaintiffs alleged that the merger of CBS and Viacom (referred to as the “Merger”) was the culmination of a years-long effort by Shari Redstone to combine the two companies in order to save the floundering Viacom, despite the lack of economic merit of the Merger and the opposition of CBS directors and stockholders alike.  Plaintiffs alleged that Shari Redstone wrested control of NAI (the holding company that controls CBS and Viacom) from her ailing father Sumner Redstone, and twice previously attempted to merge CBS and Viacom and failed.  The first time she was rebuked by the CBS board of directors, after which she publicly proclaimed that “the merger would get done even if [she had] to use a different process.” 

Two years later, Ms. Redstone was back at it, attempting to force a CBS-Viacom merger.  This time the CBS board was so concerned that Ms. Redstone would force a merger over their objections, that they took the “extraordinary” measure of attempting to dilute Ms. Redstone’s control of CBS to protect CBS and its stockholders from her influence.  After hard-fought, expedited litigation, a settlement was reached that resulted in the CBS board turning over, and the addition of six new directors hand-picked by Ms. Redstone.  Importantly, Ms. Redstone and NAI also agreed that they would not propose that CBS and Viacom merge for a period of two years following the settlement.

In spite of the settlement’s prohibitions, Plaintiffs allege that Ms. Redstone and NAI pushed forward.  Only four months after the settlement Shari Redstone caused the new CBS board—whom she had largely hand-picked—to form a committee to evaluate a merger with one primary target: Viacom.  Ms. Redstone sidelined carry-over directors who opposed her, enticed CBS’s acting CEO Joseph Ianniello (who previously opposed the Merger) to support her with hefty compensation packages, and worked to impose her views on an ultimate tie up through Ianniello’s newfound support.  As controlling stockholders of CBS, NAI and Ms. Redstone decided not to give CBS’s minority stockholders any say on the Merger—such as by permitting them to vote—and instead pushed the Merger through on deal terms that benefitted NAI and Viacom to the detriment of CBS and its stockholders in violation of their fiduciary duties.

In the end, Plaintiffs allege that the Merger forced the poorly performing Viacom on CBS and destroyed value for CBS and its stockholders for NAI’s benefit.  Plaintiffs brought both direct class and stockholder derivative claims in the Delaware Court of Chancery in the Spring of 2020, and alleged that the current ViacomCBS board was conflicted and, therefore, not able to entertain a stockholder demand to initiate litigation against the board and NAI.  In its opinion, the Court credited nearly all of Plaintiffs’ allegations and held that the transaction was a “conflicted controller transaction” where Shari Redstone “engineered the Merger to bail out Viacom for the benefit of NAI, and thereby extracted a non-ratable benefit from the transaction.”  Vice Chancellor Slights noted in response to Defendants’ arguments that “A sinking ship remains a sinking ship, regardless of its proximity (spatial or temporal) from rock-bottom; and Plaintiffs have satisfactorily pled Ms. Redstone believed Viacom needed to be rescued at the time of the Merger.”

With respect to Plaintiffs’ class claims, the Court ruled that sufficient to survive were Plaintiffs’ claims that “Ms. Redstone coerced Ianniello and the CBS Board into playing roles in the dramedy that culminated in the Merger, where CBS ostensibly played the role of acquirer” despite that what “really happened” was that “Ms. Redstone, desperate to combine Viacom and CBS, and viewing Viacom as the entity that would emerge from the Merger as superior, caused CBS to be subjugated by Viacom’s Board and management in a combined company that would henceforth be known as ViacomCBS.”

The case will now proceed to discovery, with a trial expected to be set for some time in mid-to-late-2022.

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