Paramount Communications, Inc. v. Time, Inc.

571 A.2d 1140 (1990)

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Nature of the Case

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Facts

Time (D) is a corporation which publishes magazines and book and also provides some pay television programs. At the relevant time period, D's board consisted of 16 directors. In 1987, D established a committee of executives to consider and propose corporate strategies for the 1990s. The consensus of the committee was that D should move ahead in the area of ownership and creation of video programming. In late spring of 1987, a meeting took place between the CEO of Warner Brothers and Nicholas, president and chief operating officer of D, in order to discuss a possibility of a joint venture. In August, D's chairman and chief strategist, Levin, wrote to Munro, D's chairman, and CEO recommending a strategic consolidation with Warner. On July 21, 1988, D's board met, with all outside directors present in order to consider D's expansion into the entertainment industry on a global scale. Without choosing the company, the board approved the expansion plan. Eventually after long deliberations and numerous meetings, at its March 3, 1989 meeting, D's board met and unanimously approved the stock for stock merger with Warner. Warner's board also approved the merger. The agreement called for Warner to be merged into a wholly owned Time subsidiary with Warner becoming the surviving corporation. The common stock of Warner would then be converted into common stock of Time at the agreed upon ratio. Thereafter, the name of Time would be changed to Time-Warner, Inc. At the same meeting, D's board adopted several defensive tactics. On May 24, 1989, D sent out extensive proxy statements to the stockholders regarding the approval vote on the merger. On June 7, 1989, P made an announcement of its all-cash offer to purchase all outstanding shares of D for $175 per share. However, the offer was subject to 3 conditions: termination of the Warner-Time agreement, obtainment of the required cable franchise and judicial determination that anti-take-over statute was not applicable. D's board met three times to discuss the offer and considered it inadequate and concluded that the merger with Warner was better. On June 16, D formally rejected P's offer. At the same meeting, D's board decided to recast its consolidation with Warner into an outright cash and securities acquisition of Warner by Time; and D so informed Warner. Warner agreed but insisted on certain terms. Warner sought a control premium and guarantees that the governance provisions found in the original merger agreement would remain intact; that D would not employ its poison pill against Warner and that unless enjoined D would legally bound to complete the transaction. On June 23, P raised its offer to $200 per share. D's board again rejected the offer. Paramount Communication and shareholders of Time Inc. (Ps), separately filed this suit in a Delaware Court of Chancery to seek a preliminary injunction to halt Time's (D) tender offer for 51% of Warner Communications Inc.'s (Warner) outstanding shares at $70 cash per share. The court below consolidated the cases and denied Ps' motion. The same day Ps filed this appeal. Pending the appeal, a stay of execution of D's tender offer was entered for ten days, or until July 24, 1989, 5 p.m.,