Issuing the dividend would dilute National Amusement's holding of Class A voting shares in CBS from about 79 percent to 17 percent, reducing its control of the company.
CBS went on to accuse Redstone of interfering with the CBS board nomination process, of acting to undermine CBS' "highly lauded and successful management team in a series of escalating attacks", and blocking another unnamed acquisition partner from pursuing a deal with CBS.
National Amusements, which controls CBS and Viacom, has been trying to merge the two companies.
CBS Corp. has scheduled a meeting of the full CBS Board for this Thursday to consider potential responses to Ms. Redstone's conduct, including the issuance of a dividend that would effectively reduce the Redstones' and National Amusements' voting power, from 80 percent to approximately 17 percent. CBS alleges that Redstone shooed away an interested buyer, reportedly Verizon Communications Inc.
A representative for Shari Redstone was not immediately available to comment. Viacom shares dropped 7 per cent to $28.05, giving it a market value of $12 billion, as investors fretted over the company's prospects as a stand-alone company. The talks, that started in February, had hit an impasse over disagreements about price as well as the role of Viacom Chief Executive Bob Bakish in the combined company, sources said earlier this month.
CBS's lawsuit also said Redstone rejected an approach by an unnamed potential acquirer of CBS, citing that as another reason her interests are not aligned with other CBS shareholders.
Its proposed dividend would not dilute the economic interests of any CBS stockholder, but would help the company to operate as an independent, noncontrolled company and fully evaluate strategic alternatives, the company said.
Shari Redstone was surprised by the lawsuit, particularly since CBS and Viacom had informally agreed on a stock exchange ratio for a deal of 0.6135 CBS shares for every Viacom class B share, according to people familiar with the situation. While there may be an obvious cultural misalignment between Verizon and CBS, a tie-up between the No. 1 USA wireless carrier and the TV-network owner would be a natural response to the $109 billion pending merger between their rivals, AT&T Inc. and Time Warner Inc. "With the expectation that the Redstones may attempt to interfere with the planned meeting, CBS in a preemptive measure is demanding a temporary restraining order from a DE judge".