Paramount Communications, Inc. v. Time Incorporated Fed. Sec.L.Rep. (Cch)

94,514 (Del.Ch. 1989)

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Nature of the Case

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Facts

Ps, (Paramount, and KDS Acquisition Corp, a subsidiary of Paramount), wished to enjoin Time, (D) from carrying out its planned offer to purchase 100 million Warner Communications shares, 51% of the company. D offered a cash deal at $70 per share. Ps extended an offer to purchase all of the shares of D at $200 per share. The directors of D were previously granted by board meeting the legal power to complete a public tender offer. The issue before the court was whether D had to stop its offer before D's shareholders had the opportunity to examine the P offer for D. D's directors claim they have no fiduciary duty to stop their offer of Warner; they only need exercise their judgment prudently to which they claim they have done so. The directors of D contend that whether the Warner transaction in its current form should be pursued is for them to decide and not the shareholders. (more background details are given in the next rendition of the case; see the next case in this product). The initial D-Warner merger was agreed upon on March 3, 1989. To protect the merger, a share exchange agreement was signed, and various banks were made to commit to not financing an attempt to take over D and the ability of D was severely limited in entering into any take over negotiations prior to the closing of the merger. On the day of its annual shareholder meeting, P announced its first offer to buy D subject to the conditions on page 947 Choper 5th. The stock market was excited by the news and D's stock jumped 44 points in one day to $170 and rose higher but fell to $146 on the day of this motion. D immediately attacked Ps' offer as smoke and mirrors. After further negotiations, D's board recast its deal with Warner in the form of a cash acquisition of a majority stake in Warner to be followed by a merger that would not require shareholder approval. Ps' claim this ignores shareholder rights. Through experts, D determined that a fair price would be as high as $250. Also, the terms of the P offer would delay closing for some months or as much as one year. In response, D offered the $70 cash price for Warner shares, and Warner invoked the exchange of shares from the Exchange Agreement. P then offered $200. D's directors were not impressed, and their analysis of the transaction remained unchanged.