Paramount Communications, Inc. v. Time Inc.
Citation: 571 A.2d 1140 (Delaware Supreme Court, 1990)
Facts
Time Inc. was negotiating a friendly merger with Warner Communications to implement a long-term strategic plan for the combined company. Before the deal closed, Paramount launched a hostile all-cash, all-shares tender offer for Time at a significant premium to market price. Time’s board rejected the Paramount offer without putting it to a shareholder vote, restructured its deal with Warner as an acquisition (to avoid a shareholder vote on the Time-Warner combination), and adopted defensive measures. Shareholders argued that Time’s board was in Revlon mode and had to accept Paramount’s superior offer.
Issue
Did Time’s decision to proceed with the Warner acquisition and reject Paramount’s premium cash offer trigger Revlon duties, requiring the board to maximize shareholder value in a sale?
Holding
No. The Delaware Supreme Court held that Revlon was not triggered because Time had not abandoned its long-term strategic plan, was not selling the company, and a change of control to a fluid public market (rather than to a specific controlling entity) did not invoke Revlon mode. The board’s defensive response satisfied Unocal scrutiny.
Rule
Revlon duties are not triggered merely because a third party makes a premium bid or because shareholders might prefer the premium offer. Revlon applies when the board decides to sell the company or when a change of corporate control (to a specific controlling entity) is inevitable. A board may reject a premium offer and continue pursuing its own strategic plan as long as the plan is not motivated primarily by entrenchment and the defensive measures satisfy Unocal scrutiny (reasonable in relation to the threat posed).
Significance
Paramount v. Time is critical for understanding the limits of Revlon and the continued vitality of Unocal. The case establishes that courts will not second-guess a board’s long-range strategic plan simply because shareholders would prefer a cash premium, so long as the plan is legitimate and the defensive measures are proportionate. The case also reflects Time Warner’s importance as a media deal and raises fundamental questions about whose interests the board serves — shareholders seeking short-term premiums or the corporation as an ongoing concern.