Corporate Governance

Limiting the Duty of Loyalty: Pfeffer v. Redstone (Introduction)

By J. Robert Brown

We will do a series of posts today on Pfeffer v. Redstone.  The case involves the spin off of Blockbuster by Viacom.  Viacom was largely owned by National Amusements, Inc. (NAI), which held 71% of the voting interests of Viacom.  Viacom, in turn, held most of the shares of Blockbuster.  The company owned approximately 82.3% of the equity value and 95.9% of the voting power in Blockbuster. 

Viacom opted to spin off Blockbuster, offering shares of Blockbuster to its minority shareholders (NAI announced it wouldn't participate).  Before the spin off, an independent special committee of the Blockbuster board of directors approved the Special Dividend, which entailed the payment of a $5 dividend.  Of the amount paid, Viacom received over $738 million of the $905 million distributed to Blockbuster stockholders.

In many respects, the case is typical.  It entails a challenge to the transaction, using the limited tools provided by Delaware law.  Much of the decision turns on alleged disclosure violations.  There is, however, a significant duty of loyalty issue that, as usual, gets little attention.  We will devote several posts on the case, the first written by Laura Almquist, one of the students on The Race to the Bottom.

Primary materials can be found at the DU Corporate Governance web site.

Full post as published by The Race to the Bottom on February 23, 2009 (boomark / email).