Paramount Global has agreed to pay shareholders $122.5 million to resolve allegations that the 2019 CBS-Viacom merger was unfair, according to a recent SEC filing. The $30 billion “controlled transaction” created ViacomCBS, Inc. – the multi-billion dollar entertainment empire that owns well-known television brands such as Paramount, CBS, MTV, Nickelodeon and Showtime – which went on to was renamed Paramount Global.
The lawsuit – filed on behalf of Viacom shareholders in the Delaware Court of Chancery – specifically asserts breach of fiduciary duty against the Redstone-controlled media company National Amusements Inc. (“NAI”) and the members of the Special Committee of Viacom, which approved the merger.
At the center of the allegations is media mogul Shari Redstone and her “relentless” desire to “reunite” the two “family” businesses and rival the legacy of her late father, Sumner Redstone. For years, Sumner Redstone said he didn’t want Shari Redstone controlling Viacom or CBS because he didn’t think she was a good fit for the job. However, as Mr Redstone’s health began to deteriorate, Mrs Redstone reportedly embarked on a three-year campaign to prove him wrong and become a “media mogul”, culminating in the 2019 deal.
During the sale process, Ms Redstone reportedly insisted that the post-merger company be run by Viacom CEO Robert Bakish. To secure Redstone’s governance priorities, Viacom’s board reportedly agreed to accept a price less than it was worth – $1 billion less than it had negotiated a year earlier. The shareholder complaint specifically alleges the following:
- NAI was the controlling shareholder of Viacom and CBS, owning approximately 80% of the Class A voting stock.
- For years after Sumner Redstone’s health deteriorated in 2016, Shari Redstone removed governance protections put in place by her father, including replacing subversive administrators on the boards of NAI, Viacom and CBS with friends and family.
- After two failed attempts to combine CBS and Viacom in 2016 and 2018 respectively, Redstone tried again – following Ousting of Les Moonves over allegations of sexual harassment – but this time insisted that Bakish and much of his management team run the combined entity.
- Taking advantage of Redstone’s “unwavering insistence” that Bakish be in charge, CBS insisted that Viacom make significant price concessions in exchange for Redstone’s governance priorities.
- Viacom’s Special Committee ultimately capitulated, ceding significant shareholder value to CBS, including value created by synergies.
- In negotiating the transaction, Viacom’s special committee also incorrectly relied on exchange ratios from public research analyst forecasts that undervalued Viacom and overvalued CBS.
- As a result, Viacom accepted an implied valuation $1 billion lower than it had rejected a year earlier before the company’s operational turnaround.
As of November 25, 2019, four class action lawsuits against Viacom were filed and ultimately consolidated in January 2020. On February 7, 2020, Vice Chancellor Joseph R. Slights III appointed the California Public Employees’ Retirement System to represent shareholders in as lead plaintiff and Bernstein Litowitz Berger & Grossmann as lead counsel. In December 2020, the Delaware Court of Chancery dismissed Robert Bakish as a defendant in the case, but upheld the claims against the other named defendants, including Ms. Redstone, finding that the strict standard of review “of full equity” was applicable under Delaware law.
The inside story of the CBS-Viacom merger, Shari Redstone’s relationship with her father, and her power struggle also form the basis of a new book titled: Unscripted: The Epic Battle for a Media Empire and the Redstone Family Legacyby James B. Stewart and Rachel Abrams.
While the Viacom shareholder action has been tentatively resolved, a separate shareholder and derivatives action on behalf of CBS shareholders challenging the same transaction is still pending in the Delaware Chancery. In a 159-page decision in January 2021, Vice Chancellor Slights also ruled that the CBS shareholder claims survived defendants’ motions to dismiss, but for a disclosure request. Subsequently, the defendants requested a joint lawsuit for the shares of the shareholders of CBS and Viacom, but the offer was rejected by Vice-Chancellor Sam Glasscock III who found that separate five-day trials would not affect the economy of litigants.
The history of CBS and Viacom is no stranger to shareholder litigation — as the companies have faced a dozen lawsuits over the past two decades in federal or state courts. While the majority of these cases were ultimately dismissed, it highlights the often spurious investor-corporate relationship with executives holding dual-class, high-voting stock. One of these cases led to a $14.75 million settlement resolve #MeToo-related allegations that CBS failed to disclose former CEO Les Moonves’ sexual harassment behavior.
Once legally resolved, this action will become the fourth largest direct shareholder settlement of all time litigated in the Delaware Court of Chancery. The three largest settlements include Dell Technologies ($1 billion – scheduled for settlement on April 19, 2023), ActivisionBlizzard ($275 million settled on May 20, 2015) and Digex ($165 million settled April 6, 2001).
ISS Securities Class Action Services will continue to closely monitor this high profile action as it progresses towards formal settlement and will provide updates to its clients and the investment community as developments occur. .