Paramount Communications, Inc. v. Time Inc.

Paramount Communications, Inc. v. Time Inc., Fed. Sec. L. Rep. (CCH) ¶ 94, 514 (Del. Ch. 1989); "aff'd", 571 A.2d 1140 (Del. 1989) is a U.S. corporate law case from Delaware, concerning defensive measures in the mergers and acquisitions context. The Delaware Court of Chancery and the Supreme Court of Delaware upheld the use of defensive measures to advance the long-term goals of the target corporation, where the corporation was not in ""Revlon" mode".
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.
Court of Chancery 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.
Supreme Court judgment.
On appeal to the Supreme Court of Delaware, Justice Henry Horsey affirmed the outcome reached by the Court of Chancery, on different grounds: that the target corporation did not face "breakup", a condition necessary at the time to invoke "Revlon" duties.
The "breakup" test for crossing the "Revlon" threshold was later replaced with the "fundamental change" test, which encompasses both breakup and change of control, in the 1994 case of "Paramount Communications, Inc. v. QVC Network, Inc.".