CBS shareholders can pursue a lawsuit over the 2019 merger of Viacom and CBS, a Delaware judge ruled late Thursday.
Shari Redstone, the daughter of late media mogul Sumner Redstone, and former acting chief executive of CBS Joe Ianniello are at the center of the dispute, in which stockholders allege that the duo had pressured the company into entering into an unfair merger that created ViacomCBS.
Vice Chancellor Joseph Slights of the Delaware Court said it is reasonable to explore a claim that Ianniello “sold” support for the deal to Redstone in exchange for accepting a $125 million severance. As a result, the judge threw out Ianniello and ViacomCBS’ motions to dismiss.
The judge cited a reversal of positions by Redstone and Ianniello as worthy of examination. Before being crowned acting CEO, Ianniello served as the number two to longtime CBS CEO Les Moonves, who, before being ousted over sexual misconduct allegations in 2018, had been staunchly against a merger of CBS and its sister company Viacom. The judge cited Ianniello’s support of Moonves’ position and the exec’s attempts to block the merger prior to his support of the deal.
The judge pointed to the fact that Ianniello’s reversal of position resulted in his severance ballooning from $60 million to $125 million. Redstone had publicly criticized Ianniello’s severance at the lower figure, but later supported it in order to move the merger forward.
“Both Ianniello’s and Ms. Redstone’s 180-degree change from their prior positions support reasonable inferences that Ianniello’s enriched severance compensation was a quid pro quo and that he violated his fiduciary duty, with the Director Defendants’ help, by giving his loyalty to Ms. Redstone in return,” Slights wrote. “By selling his endorsement for the Merger — which Plaintiffs well plead Ianniello knew was bad for CBS stockholders — Ianniello conceivably violated his fiduciary duty of loyalty.”
Ianniello disputed this allegation and said he originally thought the merger was bad for CBS, but once he took the helm of the company, he changed his mind. He left in early 2020, months after the ViacomCBS merger was completed in late 2019.
“At this stage, Ianniello has offered no basis that would allow the Court to deny Plaintiffs the reasonable inference that his contractual incentive to support the allegedly unfair merger overpowered his counteracting incentive as a stockholder to support only a fair merger,” Slights concluded.
ViacomCBS is also battling a second lawsuit from Viacom shareholders, who are challenging the merger on similar grounds. In both suits, CBS and Viacom shareholders claim Redstone, who runs parent company National Amusements, disregarded their interest when she forced the merger.