Paramount v. QVC
Encyclopedia
In Paramount Communications, Inc. v. QVC Network, Inc., 637 A.2d 34 (Del. 1994), the Delaware Supreme Court clarified the type of transaction that triggers Revlon, Inc. v. MacAndrews & Forbes Holdings, Inc.
duties.
The Paramount Board refused to conduct a formal bidding process with QVC on the grounds that it would be inconsistent with its contractual obligations to Viacom.
When a corporation undertakes a transaction which will cause (a) a change in corporate control, or (b) a break-up of the corporate entity, the director’s obligation is to seek the best value reasonably available to the stockholders
Burden of Proof
The “directors have the burden of proving that they were adequately informed and acted reasonably”.
Key Features of the Enhanced Scrutiny Test
The courts will look into the adequacy of the directors’ decisionmaking process, including what information they used in coming to their decision. In addition, the court will consider the reasonableness of the directors’ action in light of the circumstances then existing.
Revlon, Inc. v. MacAndrews & Forbes Holdings, Inc.
Revlon, Inc. v. MacAndrews & Forbes Holdings, Inc., 506 A.2d 173 was a landmark decision of the Delaware Supreme Court on hostile takeovers....
duties.
Facts
This case involved a proposed merger between Viacom and Paramount Productions; as part of the merger agreement, Paramount agreed to an array of defensive measures, including a no-shop provision, $100 million dollar termination fee and a lock-up option on approximately 20% of Paramount’s common-stock. However, QVC intervened with its own, facially more generous merger proposal, conditioned on cancellation of the defensive measures.The Paramount Board refused to conduct a formal bidding process with QVC on the grounds that it would be inconsistent with its contractual obligations to Viacom.
Holding
Revlon TriggersWhen a corporation undertakes a transaction which will cause (a) a change in corporate control, or (b) a break-up of the corporate entity, the director’s obligation is to seek the best value reasonably available to the stockholders
Burden of Proof
The “directors have the burden of proving that they were adequately informed and acted reasonably”.
Key Features of the Enhanced Scrutiny Test
The courts will look into the adequacy of the directors’ decisionmaking process, including what information they used in coming to their decision. In addition, the court will consider the reasonableness of the directors’ action in light of the circumstances then existing.