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.
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.
Held. The Delaware Supreme Court affirmed the lower court’s holding in Defendant’s favor. The court distinguished the Revlon decision as concerning a company that already was determined to sell itself off to the highest bidder, and therefore the only duty owed at that point was to the shareholders. In this case, Time only looked as if it were for sale as it moved forward on a long-term expansion plan. Various facts, such as Time’s insistence on ensuring the journalistic independence and it’s temporary holding of the CEO position, illustrated that the directors were not simply selling off assets. Once it was determined that the directors’ decision passed the Revlon test, the Unocal test was applied. The directors also passed the higher standard called for in Unocal to directors who are rebuffing a potential buyer. The directors reasonably believed, after researching several companies, that a merger with Warner made the most sense as far as future opportunities and maintaining th
eir journalistic credibility.
Discussion. The court has now applied a dual Revlon/Unocal test to determine if the directors acted reasonably. Once it is determined that a company is not simply putting itself up for sale, then the courts will apply the Unocal standard.