Paramount Communications Inc, v. Qvc Network

637 A.2d 34 (1994)

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Nature of the Case

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Facts

This action arises out of a proposed acquisition of Paramount by Viacom through a tender offer followed by a second step merger, and a competing unsolicited tender offer by QVC. Beginning in the late 1980's Paramount investigated the possibility of acquiring or merging with other companies in the entertainment, media or communications industry. Negotiations began between Davis (director of Paramount) and Redstone, who controlled Viacom. The negotiations broke down, however then Davis learned of QVC's interest and the market value of Viacom's Class B nonvoting stock increased from $46.875 to $57.25. On September 12, 1993, the Paramount board met for the second time and unanimously approved the Original Merger Agreement whereby Paramount would merge with and into Viacom. The terms of the merger provided that each share of Paramount common stock would be converted into 0.10 shares of Viacom Class A voting stock. 0.90 shares of Viacom Class B nonvoting stock, and $9.10 in cash. In addition, the Agreement contain several devices designed to make it more difficult for a potential competing bid to succeed. First, the board agreed that Paramount would not solicit, encourage, discuss, negotiate, or endorse any competing bids unless: a) a third party makes an unsolicited written, bona fide proposal, which is not subject to any material contingencies relating to financing, and b) the Paramount board determines that discussions or negotiations with the third party are necessary for the Paramount board to comply with its fiduciary duties. Second, under the Termination fee provision, Viacom would receive a $100 million termination fee if: Paramount terminated the merger agreement because of competing bid; Paramount's stockholders did not approve the merger, or the Paramount board recommended a competing transaction. Third, is the Stock Option Agreement, which granted to Viacom an option to purchase approximately 19.0% of Paramount's outstanding stock at $69.14 per share if any of the triggering events for the Termination Fee occurred. Despite all the discouraging attempts. QVC made their tender offer. On October 21, 1993, QVC filed this action and publicly announced an $80 cash tender offer for 51% of Paramount's outstanding shares. The Court of Chancery granted a preliminary order enjoining certain defensive measures designed to facilitate a so-called strategic alliance between Paramount and Viacom approved by the board of directors of Paramount and to thwart an unsolicited, more valuable tender offer by QVC.