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Shareholder Sues Viacom, Blockbuster to Stop Stock Swap

15 Mar, 2004 By: Holly J. Wagner

Just hours after executives of Blockbuster Video and its parent company, Viacom, Inc., announced a plan to spin the No. 1 video rental chain off as a separate business, a shareholder sued the companies to block an expected stock swap to facilitate the transaction.

Investor Howard Vogel filed a lawsuit Feb. 10 in the Newcastle County Chancery Court in Delaware naming John Muething, Linda Griego, CEO John Antioco, Jackie Clegg, Blockbuster, Viacom and Blockbuster's directors, who are also directors and/or officers of Viacom, as defendants.

Vogel alleges a stock swap that Viacom is expected to announce to close out its 81 percent ownership in Blockbuster would be a breach of fiduciary duty to minority stockholders and that the defendants engaged in unfair dealing and coercive conduct. The complaint asks the court to certify a class and to block the transaction, which Viacom CEO Sumner Redstone recently told investors should take place in mid-July.

But details of the swap offer have yet to be finalized, prompting Blockbuster executives to brand the case premature in an annual report filed with the Securities and Exchange commission.

“As of yet, no definitive transaction has been identified by Blockbuster and Blockbuster believes the plaintiff's position is without merit,” the report states. “Plaintiff has confirmed that Blockbuster and the other defendants are not required to respond to the pending complaint. Should it become necessary, Blockbuster intends to vigorously defend [against] the litigation.”

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