Paramount Communications, Inc. v. QVC Network, Inc.
Citation: 637 A.2d 34 (Delaware Supreme Court, 1994)
Facts
Paramount Communications entered into a friendly merger agreement with Viacom that included deal protections: a no-shop provision, a termination fee, and a stock option lock-up. QVC subsequently made a competing bid for Paramount at a higher price. Paramount’s board refused to negotiate with QVC, invoking the no-shop and other deal protections. Sumner Redstone, Viacom’s controlling shareholder, would receive majority control of the surviving entity upon completion. QVC challenged the deal protections and the board’s refusal to consider QVC’s superior offer.
Issue
Whether Revlon duties applied to the Paramount-Viacom merger, and whether the deal protections that impeded a higher competing bid were consistent with those duties.
Holding
Yes. The Delaware Supreme Court held that Revlon was triggered because the Paramount-Viacom transaction would transfer control from Paramount’s widely dispersed public shareholders to Viacom’s controlling shareholder Sumner Redstone. The deal protections were accordingly impermissible to the extent they prevented the board from securing the highest value reasonably available.
Rule
Revlon duties are triggered when a transaction results in a change of control — specifically, when control of a corporation with dispersed public ownership shifts to a specific controlling entity. In Revlon mode, the board must seek the highest value reasonably available to shareholders and may not favor one bidder over another through deal protections that foreclose superior offers. Lock-ups, no-shops, and termination fees are scrutinized for whether they inappropriately chill competitive bidding. The board must exercise informed business judgment and cannot use force-the-vote provisions to avoid its Revlon obligations.
Significance
QVC is the decisive sequel to Paramount v. Time: together, the two cases define exactly when Revlon is and is not triggered. QVC establishes that the key factor is whether dispersed public shareholders are losing their ability to receive a future premium through a control transaction — i.e., whether control is shifting to an identifiable person. The case is essential for understanding the relationship between Revlon, Unocal, and the concept of “change of control” in the context of deal protections and fiduciary outs in merger agreements.