The Westmoreland County Employees’ Retirement System filed the proposed class action in Delaware Chancery Court, where CBS and NAI are already doing battle over a proposal to dilute NAI’s voting control over the company.
The retirement plan, which holds CBS common stock, accuses NAI and its president, Shari Redstone, of breaching their duties to public stockholders by taking steps to thwart the dilution. On May 17, the CBS board voted 11-3 to award a dividend of voting shares to non-voting Class B stockholders, effectively stripping Redstone of control of the company. The unprecedented move reflected the board’s increasing frustration with Redstone’s push for a merger with Viacom, which she also controls.
The day prior to the vote, Redstone issued bylaw amendments requiring a 90% supermajority for such an action. Because NAI controls three seats on the CBS board, the bylaw amendment would give her a veto over the plan. The dilution was made contingent on approval of the Delaware court, where CBS and NAI have been filing competing claims over the validity of the action.
As a Class B stockholder, the Westmoreland County Employees’ Retirement System stands to gain voting power if the dilution is approved. The complaint alleges that the board’s action should hold sway, and that the bylaw amendments undermine the independent governance of CBS.
“There is no independent Board if the controlling stockholder is allowed to thwart the Board’s ability to act independently,” the suit alleges.
NAI has argued that the dilution was precipitous and unwarranted, as Redstone has no intention of forcing a merger against the will of both companies’ boards.
In response, NAI said it had a legal right to change the bylaws.
“Furthermore, as detailed in NAI’s complaint, the efforts of the CBS Directors to unilaterally dilute the voting rights of its controlling shareholder are extraordinary, unjustified and unlawful,” the parent company said. “We are confident the court will uphold NAI’s action.”