Paramount Communications, Inc. v. Time Incorporated
| Paramount Communications, Inc. v. Time Incorporated | |
|---|---|
| Court | Delaware Supreme Court |
| Citation(s) | (CCH) 94, 514; affd 571 A.2d 1140 (Del. 1989) |
| Keywords | |
| Free movement of goods | |
Paramount Communications, Inc. v. Time Incorporated Fed Sec L Rep (CCH) 94, 514; affd 571 A.2d 1140 (Del. 1989) is a US corporate law case, concerning defenses against mergers and acquisitions in Delaware.
Facts
Time Inc. and Warner Communications were planning to merge. Time wanted to get into TV more with its HBO channel, and wanted Warner Communications’s help. Then Paramount made an offer to all the shareholders of $200 per share (up from an initial $175). Time shares had been trading at $120. Time had a range of defenses, including a staggered board, making it hard to meet, with a 50-day notice period for any motions, and a poison pill plan with a 15% trigger. But with the Paramount threat, they went further. It was going to be a stock for stock merger, and instead they changed it into a leveraged purchase transaction. The NYSE required that shareholder approval be given for transfers above 20% of shares. So this change in the structure of the transaction meant that shareholders would not be given a say.
Shareholders wanted to enjoin the board from following the merger through, and thwarting Paramount’s offer with its cash out option.
Judgment
Chancellor Allen held that the takeover defenses were proportionate to the threat posed to the culture of the company. It followed that the board had not breached its duties.
| “ | I note parenthetically that plaintiffs in this suit dismiss this claim of ‘culture’ as being nothing more than a desire to perpetuate or entrench existing management disguised in a pompous, highfalutin’ claim… I am not persuaded that there may not be instances in which the law might recognize as valid a perceived threat to a ‘corporate culture’ that is shown to be palpable… distinctive and advantageous.
[...] Many people commit a huge portion of their lives to a single large-scale business organization. They derive their identity in part from that organization and feel that they contribute to the identity of the firm. The mission of the firm is not seen by those involved with it as wholly economic, nor the continued existence of its distinctive identity as a matter of indifference. [...] [The board has...] ... continued to manage the corporation for long term profit pursuant to a preexisting business plan that itself is not primarily a control device or scheme, the corporation has a legally cognizable interest in achieving that plan. [...] Reasonable persons can and do disagree as to whether it is the better course from the shareholders’ point of view collectively to cash out their stake in the company now at this (or a higher) premium cash price. However, there is no persuasive evidence that the board of Time has a corrupt or venal motivation… |
” |