Paramount Communications, Inc. v. Time, Inc.
571 A.2d 1140 (Del.Supr. 1989)
The directors of Time were
looking to merge their corporation with a corporation called Warner. The
two boards negotiated and came to an agreement for a stock-for-stock
Under the rules of the NYSE
stock exchange, Time needed shareholder approval to complete the merger.
Before the shareholder vote
occurred, Paramount stepped in an offered to buy all of Time's stock for
$175 a share. The directors, felt that it was a better deal in the
long-run to merge with Warner than to get bought by Paramount.
Time's directors were
worried that shareholders would be dazzled by the cash offer and not
recognize the long-term benefits of the Warner merger and so not vote to
Time's directors quickly
changed their deal with Warner. Instead of merging, Time would make a tender
offer and simply buy all of Warner's
That did not require a
shareholder vote, but it did result in a lot more debt than the merger
Some of Time's shareholders
(and Paramount) sued to stop the tender offer.
The directors argued that
their actions were covered by the business judgment rule.
The shareholders argued that
the merger deal with Warner effectively put Time up for sale. Therefore
the directors were under an obligation (aka Revlon duties) to get the best possible price, whether that
was from Warner or from Paramount.
See Revlon, Inc. v.
MacAndrews & Forbes Holdings, Inc. (506 A.2d 173 (1985).
Paramount argued that under Unocal
Corp. v. Mesa Petroleum Col. (493
A.2d 946 (1985)), Time's directors could only implement anti-takeover
measures if they reasonably believed that Paramount posed a legally
cognizable threat to Time shareholders and a danger to Time's corporate
policy and effectiveness.
The Trial Court found for the
directors. The shareholders appealed.
The Appellate Court affirmed.
The Appellate Court found
that Revlon duties are only
triggered when a corporation either initiates an active bidding process
to sell itself, or when there is a reorganization involving a clear
break-up of the company.
In this case Time was
intending on continuing business as before, with many of the same
directors and corporate culture. It was not putting itself up for sale
and no Revlon duties were
The Court found that Time's
directors adequately assessed Paramount's offer as a threat, and that the
term 'threat' should be read pretty broadly. It isn't narrowed to just
things like hostile takeovers.
In addition, Time's
response to Paramount's offer was reasonable in relation to the threat
The Court found that the
directors had a right to 'just say no' to an unsolicited takeover offer.
They were not bound to give the shareholders a chance to approve the