Sunday, November 24, 2013

Paramount Communications Inc. v. QVC Network Inc. case brief

Paramount Communications Inc. v. QVC Network Inc. case brief summary
637 A.2d 34 (Del. 1994)

Defendants, a target corporation, an acquirer corporation, and the target's board, appealed the issuance of a preliminary injunction by the Court of Chancery in and for New Castle County (Delaware), in consolidated actions by plaintiffs, stockholders of the target and an offeror, to enjoin a proposed sale of control transaction between defendants.

Defendant corporations entered into negotiations for the acquirer to purchase controlling stock in the target. Plaintiff offeror then made an unsolicited tender offer that eventually exceeded the acquirer's final offer by over $ 1 billion. Due to a "no-shop" defensive provision in the agreement between defendants, however, the target's board declined to enter into negotiations with the offeror. The offeror sought and received a preliminary injunction to prevent use of the "no-shop" and other defensive provisions, including a termination fee and a stock option agreement greatly favoring the acquirer.


  • The injunction was affirmed. 
  • First, the court applied enhanced scrutiny to the sale of control transaction, rejecting defendants' contention that a "break-up" of the corporation to be sold was required before such scrutiny applied. 
  • Second, the target's directors breached their fiduciary duty by failing to adequately consider which tender offer was best for the stockholder; the defensive provisions could not alter this duty.

Issuance of injunction affirmed and case remanded; enhanced judicial scrutiny of sale of control transaction between defendants applied, regardless of whether corporation to be sold would be "broken up," and target's directors' fiduciary duty to maximize shareholder value in sale could not be altered by defensive provisions in sale agreement.

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