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CBS independent directors vote to dilute National Amusements voting control

CBS Corp. board of directors effectively voted to dilute control of the company held by Shari Redstone's National Amusements Inc., pending approval by Delaware courts.

CBS directors not affiliated with National Amusements voted to distribute a pro rata dividend of 0.5687 share of class A common stock for each share of the company's class A and class B common stock to stockholders of record on the record date. The dividend, if issued, would bring National Amusements' voting interest down from about 79% to about 17%, according to a May 17 press release issued by CBS.

The move comes after CBS sought a temporary restraining order against National Amusements to prevent National Amusements from voting, but that request was denied May 17 by a Delaware judge. However, the judge acknowledged that CBS may have a legitimate concern over National Amusements' impact on the company and the board's ability to execute its fiduciary duties, which could be considered by the courts separately.

Among the various grievances between CBS's independent directors and Redstone, CBS says Redstone was pushing for a merger between CBS and Viacom Inc., which is similarly controlled by National Amusements, at a price $3 billion above CBS' valuation of Viacom. A CBS special committee determined that the merger is not in the best interests of stockholders, other than National Amusements. In response to this decision, CBS directors and executive management worried that Redstone could replace independent members of the board to force through the merger. CBS also alleged that Redstone worked against a potential acquirer of the company, telling the CEO of the potential buyer that he should not make an offer.

The payment of the dividend would occur approximately 15 days following a favorable ruling by the Delaware courts, should a judge decide that the dividend is permissible despite opposition from National Amusements. It was widely believed Redstone would vote against the dividend, but CBS did not detail the National Amusements' vote in the release.

In light of the debacle and the pending litigation, CBS postponed its annual shareholders meeting, previously scheduled to take place May 18.

The board "has taken this step because it believes it is in the best interests of all CBS stockholders, is necessary to protect stockholders' interests and would unlock significant stockholder value," CBS said in the press release. If consummated, the dividend would enable the Company to operate as an independent, non-controlled company and more fully evaluate strategic alternatives."

National Amusements on May 16 amended the company's bylaws to require that certain board actions, including dividends and bylaw changes, be approved by a supermajority of the CBS board of directors. Under the amendment, dividends would require approval by 90% of the directors then in office at two separate meetings held at least 20 business days apart. Of CBS' 14 board members, three, or roughly 21%, are NAI designees.

"In light of the Board's action today, that action was plainly necessary, and it is valid," National Amusements said in a May 17 statement. "CBS management and the special committee cannot wish away the reality that CBS has a controlling shareholder," NAI added.