A Delaware judge refused to issue a restraining order against Shari Redstone and her family Thursday, allowing them to continue to keep tight control over CBS Corp. — but the Redstones received a chilly reception in the boardroom and on Wall Street.
CBS shares immediately plummeted more than 6% after the judge's ruling but closed down $2.22, or 4.1%, to $51.61.
The ruling dealt a huge setback to CBS Chairman and Chief Executive Leslie Moonves, who has been chafing under Redstone's control and her determination to merge CBS with the weaker Viacom Inc., which owns MTV, Nickelodeon and Comedy Central. Now Moonves' future is in doubt.
The judge, Andre G. Bouchard, appeared to be concerned about the potential of setting new law by issuing the restraining order and potentially opening the door for other boards, not just CBS', to try to overthrow their controlling shareholders.
"No precedent has been cited in which this (or any other court) has granted such relief," Bouchard wrote in his ruling Thursday.
National Amusements Inc., the Redstone family's investment vehicle, which effectively controls CBS, issued a statement praising Bouchard's ruling:
"We are pleased by the court's decision to deny CBS and its special committee's unprecedented motion to try to deprive a shareholder of its fundamental voting rights," the family said. "The court's ruling today represents a vindication of National Amusements' right to protect its interests."
The judge's ruling lessened the sting of a CBS board vote that occured later Thursday. CBS board members who are not affiliated with National Amusements voted to pay a dividend of 0.5687 shares of Class A voting stock to all CBS shareholders. The dividend payment is conditional — it must be approved by the Delaware courts, including any appeals. CBS postponed the annual shareholders meeting, which was scheduled for Friday.
That maneuver, should it stand, essentially would strip Redstone and her family of their control. The dividend would give votes to Class B shareholders, who currently lack a vote. Under that scenario, the Redstones would have just 17% of the vote, compared with the nearly 80% they now enjoy. The Redstones own 10.3% of CBS.
The board vote represented a lack of confidence for the vice chair, Shari Redstone.
Still, huge questions remain about whether CBS' dividend vote will be valid. On Wednesday, Redstone — through National Amusements — made changes to CBS' bylaws, requiring that votes on such matters receive at least 90% approval of the board. Because Shari Redstone has two allies on the board, Thursday's vote did not reach the 90% threshold.
"As National Amusements has repeatedly stated, it has no intention of forcing a merger that is not supported by both CBS and Viacom," National Amusements said in a statement. Thursday's "board vote, while couched as an effort to prevent such a transaction, was pure pretext."
National Amusements suggested CBS' concern was motivated by a desire to give executives control.
"CBS management and the special committee cannot wish away the reality that CBS has a controlling shareholder," the family firm said.
Redstone now can effectively block any change that she does not like because she has at least two board allies — Robert Klieger and David R. Andelman — both of whom have served as Redstone family attorneys. The bylaws change came just an hour prior to a hearing before Bouchard to consider CBS' request for a temporary restraining order against the Redstones.
CBS is expected to plow ahead with its lawsuit and challenge Redstone's bylaw change that requires the board to approve meaures with 90% of the vote.
Cowen & Co. media analyst Doug Creutz said Bouchard's ruling seemed prudent.
"The Redstones haven't (in the judge's view) done anything truly damaging to shareholders yet, so the judge is denying the restraining order," Creutz wrote. "If they do something that appears truly damaging, the judge may well intervene."
Creutz said some board members might have interpreted the judge's ruling as a gentle nudge to return to the boardroom to work out their differences quietly. But that probably won't happen.
"The judge indicated that he expects the matter will wind up back in court based on what [happened] at the meeting," Creutz said.
CBS, for its part, said it was determined to "act in and to protect the best interests of all CBS shareholders." The company took some stock in comments by the judge that he might not be afraid to step in should Shari Redstone make moves that are more in the interest of her family members than non-voting shareholders.
"We remain confident that we will prevail in the lawsuit previously filed by CBS and the members of its Special Committee," CBS said.
The legal wrangling could become protracted if CBS tries to continue to fight the Redstones.
Then there is the prospect of lawsuits from CBS shareholders alarmed by recent moves.
The courtoom brawl comes after months of strained relations among Redstone, Moonves and other members of CBS' board. Redstone has been trying to push through a merger with Viacom.
CBS' independent directors on Sunday concluded that merging with Viacom was not in the best interest of its shareholders.
Two years ago, Shari Redstone battled the board and the management of Viacom. After three months of maneuvers and court hearings, then-Viacom Chairman and Chief Executive Philippe Dauman tendered his resignation.
That cleared the decks for Redstone to install her handpicked lieutenant, Bob Bakish, as the head of Viacom. This year, much of the sparring with Moonves has been over Redstone's desire to carve out a prominent role for Bakish in a combined CBS-Viacom.
4:15 p.m.: This article was updated with information about CBS' board vote on a dividend to give Class B shareholders a vote.
2:10 p.m.: This article was updated with the closing stock price for CBS.
12:22 p.m.: This article was updated with a comment from analyst Doug Creutz.
9:30 a.m.: This article was updated to include statements from CBS and National Amusements.