That Viacom and CBS closed a $11.7 billion merger about a year ago on Dec. 4, 2019 took no one by surprise, but the fait accompli occurred after a remarkable stretch of legal strife concerning Sumner Redstone’s slipping health, Viacom’s ousted leadership, a war with Les Moonves, and more. Throughout this time, and the reason why almost everyone expected ViacomCBS to eventually happen, was the presence of Shari Redstone, an ambitious overseer who was widely known to favor a merger.
Now, a Delaware judge in the Court of Chancery has reviewed Redstone’s role, and in a 76-page opinion that goes into detail about negotiations, rules that Viacom shareholders have brought plausible claims over the alleged unfairness of merger terms. Vice Chancellor Joseph R. Slights III will allow public shareholders to pursue fiduciary duty breach claims against Redstone and those board members who represented Viacom in the transaction.
The suing shareholders allege that Shari Redstone was obsessed with attaining the status of “media magnate” so as to surpass her father’s legacy and thus pursued the merger at nearly all costs.
The Redstones exert control over both Viacom and CBS through National Amusements, Inc., which at the time of the merger held approximately 80 percent of voting stock in both companies if only 11 percent of the equity. The dual-class stock structure favored the Redstones’ whims, but the late Sumner Redstone was said to have been committed to the independence of both companies.
According to the suing shareholders, once her father was out of the picture, Shari Redstone whittled away the governance protections her father had once installed. Then came repeated attempts at merger, and ultimately, the negotiations that resulted in ViacomCBS.
According to the opinion, a Viacom negotiating committee had initially planned to focus on the value of the stock exchange, but the plan was scuttled after Viacom’s negotiators realized that Shari Redstone expected both sides to nail down governance issues first. In short, she wanted to remain in control by installing loyal lieutenants. Meanwhile, CBS’ negotiators sensed Redstone’s fixation on appointing Viacom chief Robert Bakish as CEO of the combined companies, and allegedly exploited this desire to win a commensurate “significant concession” on price. According to the opinion, Viacom’s dealmakers ultimately accepted a billion dollars less (than what was once bargained in prior merger talks) in order to achieve its controlling stockholder’s governance priorities.
The defendants urged the judge to apply the deferential business judgment rule. They characterize the lawsuit as nothing more than dissatisfaction with Redstone’s presence on both sides of the transaction.
“The parties’ fundamental disagreement over the supposedly settled state of our law regarding whether the controller’s mere presence on both sides of a merger is enough to trigger entire fairness review is interesting to be sure, but ultimately academic,” writes Slights. “After carefully reviewing the complaint, I am satisfied it adequately pleads a reasonably conceivable basis to infer that the controller achieved a non-ratable benefit from the Merger to the detriment of Viacom’s public stockholders. Thus, at this stage, and without prejudice to Defendants’ right to argue otherwise on a more developed record, I am satisfied that NAI’s conduct with respect to the Merger should be reviewed for entire fairness.”
The judge not only allows shareholders to take on Redstone and NAI, but also those who served on Viacom’s transaction committee who allegedly allowed themselves to become “servile tools in Ms. Redstone’s relentless pursuit of a Viacom/CBS combination to advance her interests.”
The only thing that the shareholders don’t get at this juncture is the go ahead to pursue Bakish as well in the lawsuit. The judge says there is not a single allegation in the complaint of wrongdoing by him.
Read the full opinion below: