In re Paxson Communication Corp. Shareholders Litigation
Delaware Court of Chancery
2001 Del. Ch. LEXIS 95 (2001)
- Written by Rich Walter, JD
Facts
Lowell Paxson controlled 75 percent of the voting shares in Paxson Communication Corporation (Pax). Pax’s board of directors (defendants) turned down an all-cash offer from the Fox Network (Fox) to purchase Pax. The board then approved a transaction by which National Broadcasting Company, Inc. (NBC) invested a substantial sum in Pax, largely in exchange for Pax convertible preferred stock. To block the NBC transaction, dissident minority shareholders (plaintiffs) sued Pax’s directors in the Delaware Court of Chancery without first asserting their appraisal rights or demanding that Pax sue the directors in its own name. The shareholders claimed that the NBC transaction directly harmed them in two ways. First, the shareholders argued that NBC’s ability to convert Paxson’s preferred shares to common shares diluted the equity value and diminished the voting powers of minority common shares. The shareholders cited In re Tri-Star Pictures, Inc. Litigation and Oliver v. Boston University in support of this argument. Second, the shareholders argued that once Fox offered to purchase Pax, the company was in play, and the Revlon doctrine obliged Pax’s directors to maximize the takeover’s value for all Pax shareholders, which the directors failed to do. Pax’s directors moved to dismiss the suit.
Rule of Law
Issue
Holding and Reasoning (Chandler, J.)
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