Paramount Communications, Inc. v. Time Incorporated

Time (defendant) began considering entering the field of entertainment and researched a wide range of companies as merger candidates, including Paramount (plaintiff) and Warner Brothers (Warner). Time and Warner eventually agreed to, and both boards approved, a stock-for-stock merger. However, before the merger was approved by Time stockholders, Paramount announced an all-cash offer for all of Time’s outstanding shares at $175 per share. Time’s board met to discuss the offer but concluded that the offer posed a threat to Time’s future business and the retention of the “Time Culture.” At the same time, the Time board decided to change its merger with Warner into an all-cash and securities acquisition of Warner. Time then made a cash offer for 51 percent of Warner’s outstanding stock at $70 per share, with the remainder to be purchased at a future date for a combination of cash and securities equaling $70 per share. A couple of weeks later, Paramount raised its offer for Time’s outstanding stock to $200 per share. The Time board again rejected the offer, maintaining that the Warner acquisition offered better long-term value for its stockholders and that it did not jeopardize Time’s corporate survival and “culture.” Time shareholders (plaintiffs) brought suit based on Revlon, Inc. v. MacAndrews & Forbes Holdings, Inc., 506 A.2d 173 (1985), claiming that the Time-Warner agreement effectively put Time up for sale, thus triggering Revlon duties such as the requirement that the Time board seek to increase the corporation’s short-term value for its shareholders. In addition, Paramount brought suit based on Unocal Corporation v. Mesa Petroleum Co., 493 A.2d 946 (Del. 1985), claiming that Time’s belief that Paramount posed a threat to its future was not reasonable, that Time failed to fully investigate Paramount’s offer, and, under Unocal’s second prong, that Time’s response to any perceived threat was unreasonable. The Delaware Court of Chancery found in favor of the defendants on all claims. The plaintiffs appealed.