CBS: Redstone's Bylaw Change Too Late to Stop Dilution

In an 8-K, CBS disputes the validity of a controversial bylaw amendment, but says even if it was valid, it wouldn't be effective for a few weeks.
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CBS Corp. chairman and CEO Leslie Moonves

This past week was a pretty historic one for CBS Corp.

After CBS filed a surprise lawsuit against its controlling stockholder, Shari Redstone's National Amusements Inc., with an eye toward blocking a merger with Viacom, a judge ruled that the network couldn't stop Redstone from interfering with a board meeting that week. Nevertheless, the board voted to dilute Redstone's control of CBS notwithstanding an attempt by National Amusements to require a supermajority vote on such action.

By securities law, CBS had four days to tell shareholders of the bylaw change, and thus it's no surprise that the company did so Tuesday in an 8-K that expresses the opinion that the "Purported Bylaw Amendments are invalid under Delaware law."

CBS already told a judge during a hearing last week that it intended to amend pleadings to address the bylaw change.

But the 8-K provides a new reason why CBS believes that its vote to dilute was proper. The broadcaster says that pursuant to securities law, it intends to soon file an "Information Statement" about the bylaw amendment. CBS posits that "the Purported Bylaw Amendments cannot become effective under controlling federal law and SEC rules until 20 days after the Information Statement is distributed to stockholders even if they were valid." (Our ital.)

In reaction to the CBS filing, the Redstone camp stated, "NAI exercised its legal right to amend CBS' bylaws and this change was effective immediately. We are confident the court will uphold NAI’s action."

Update 5/23: CBS has indeed moved ahead by filing an amended complaint in Delaware Chancery Court seeking a declaration that the bylaws are invalid or weren't effective in time.