Citation. 571 A.2d 1140,1989 Del.Fed. Sec. L. Rep. (CCH) P94,938
Brief Fact Summary. Plaintiffs, Paramount Communications, Inc. et al., sought to enjoin Defendants, Time, Inc. et al., from moving forward with a tender offer for 51% of the shares of Warner Communications, Inc. Paramount made its own bid to acquire control of Time.
Synopsis of Rule of Law. Directors are not required to favor a short-term shareholder profit over an ongoing long-term corporate plan as long as there is a reasonable basis to maintain the corporate plan.
Facts. Time decided to seek a merger or acquire a company to expand their enterprise. After researching several options, Time decided to combine with Warner. Time was known for its record of respectable journalism, and Warner was known for its entertainment programming. Time wanted to partner with a company that would ensure that Time would be able to keep their journalistic integrity post-merger. The plan called for Time’s president to serve as CEO while Warner shareholders would own 62% of Time’s stock. Time was concerned that other parties may consider this merger as a sale of Time, and therefore Time’s board enacted several defensive tactics, such as a no-shop clause, that would make them unattractive to a third party. In response to the merger talks, Paramount made a competing offer of $175 per share which was raised at one point to $200. Time was concerned that the journalistic integrity would be in jeopardy under Paramount’s ownership, and they believed that shareholder
s would not understand why Warner was a better suitor. Paramount then brought this action to prevent the Time-Warner merger, arguing that Time put itself up for sale and under the Revlon holding the directors were required to act solely to maximize the shareholders’ profit. Plaintiffs also argued that the merger failed the Unocal test because Time’s directors did not act in a reasonable manner.
Issue. The issue is whether Time’s proposed merger acts as a sale of Time that would trigger a Revlon analysis that would render the merger invalid.
