QVC Network, Inc. v. Paramount Communications Inc.
| Citation | 635 A.2d 1245 |
| Decision Date | 21 November 1993 |
| Docket Number | Nos. 13208,13117,s. 13208 |
| Parties | , Fed. Sec. L. Rep. P 97,822 QVC NETWORK, INC., Plaintiff, v. PARAMOUNT COMMUNICATIONS INC., Viacom Inc., Martin S. Davis, Grace J. Fippinger, Irving R. Fischer, Benjamin L. Hooks, Franz J. Lutolf, James A. Pattison, Irwin Schloss, Samuel J. Silberman, Lawrence M. Small, and George Weissman, Defendants. In re PARAMOUNT COMMUNICATIONS INC. SHAREHOLDERS LITIGATION. C.A. . Submitted: |
| Court | Court of Chancery of Delaware |
JACOBS, Vice Chancellor.
QVC Network, Inc. ("QVC") and a class of public shareholders of Paramount Communications, Inc. ("Paramount"), separately filed actions in this Court seeking preliminary and permanent injunctive relief against a proposed two-step acquisition of Paramount by Viacom Inc. ("Viacom"). The first step, a cash-tender offer by Viacom for 51% of Paramount's outstanding shares for $85 per share, is currently scheduled to close at midnight on November 24, 1993. The second step would be a merger of Paramount into Viacom, wherein the remaining shares of Paramount would be converted into a package of securities consisting of Viacom common (voting and nonvoting) and convertible preferred stock.
On October 21, 1993, QVC filed this action, 1 and announced a tender offer for 51% of Paramount's outstanding shares for $80 per share cash, to be followed by a second-step merger in which the remaining Paramount shares would be converted into QVC common and convertible preferred stock. On November 12, 1993, QVC raised the cash portion of its bid to $90 cash for 51% of Paramount and the remaining 49% in a package of equivalently valued securities consisting of QVC common and convertible preferred stock. The QVC offer is currently scheduled to close seven days after the closing date for the Viacom offer.
In its motion for a preliminary injunction QVC seeks, inter alia, (i) to invalidate certain so-called "lockup" agreements, including a stock option granted by Paramount to Viacom, and an agreement to pay a $100 million termination or breakup fee, both of which would become payable if the Viacom-Paramount transaction is not consummated; (ii) to prevent Viacom from consummating its tender offer and the second step merger until the lockups are invalidated and all other impediments (including Paramount's "poison pill" Rights Agreement) are made inapplicable to QVC's offer, and (iii) to require Paramount and its directors to remove all other impediments to QVC's tender offer so that it can be considered by Paramount shareholders on an equal footing with the Viacom transactions. The shareholder plaintiffs have moved for similar relief.
The Court scheduled a hearing on the injunction motions for November 16, 1993, and ordered that discovery and briefing proceed on an expedited basis. During the two and one-half week discovery period, an extensive record was developed, and briefs exceeding 400 pages were filed. The matter was heard as scheduled on November 16, 1993. Thereafter, the Court requested the parties to supplement the record, necessitating additional discovery and briefing. 2 This is the Opinion of the Court on the plaintiffs' motions for a preliminary injunction.
The pertinent facts are largely undisputed. Where they are disputed, the facts are as found (preliminarily) below.
Paramount is a publicly held Delaware corporation with its principal offices in New York City. It is a global producer and distributor of entertainment, with operations in motion pictures, television programming, cable and broadcast television, home video, theaters, sports and special events. Paramount is also a leading book publisher serving consumer, educational, and professional information markets in the United States and internationally. On November 10, 1993, Paramount strengthened its position by agreeing to acquire Macmillan Inc.. VEx. 3 4. Paramount has approximately 118 million shares outstanding. Its total assets were worth $7.2 billion as of July 31, 1993, and its revenues for the six months ending April 30, were $1.9 billion. QEx. 6 at 13.
Paramount's board of directors consists of fifteen directors, of which four are officers of the company: Martin S. Davis ("Davis"), Chairman and Chief Executive Officer of Paramount since 1983 (Paramount director since 1967); Donald Oresman ("Oresman"), Executive Vice-President, Chief Administrative Officer and General Counsel of Paramount (since 1976); Stanley R. Jaffe, President and Chief Operating Officer (since 1991); Ronald L. Nelson, Executive Vice-President and Chief Financial Officer (1992). PEx. 79 at P60207-8. Paramount's eleven "outside" directors are persons of distinction experienced in the world of business and finance, and are present or former senior executives of public corporations or financial institutions. Id.; PAB at 14-15. Lazard Freres & Co. ("Lazard"), represented by its partners Felix G. Roharyn, Steven Rattner, and Peter Ezersky, is Paramount's financial advisor in this transaction.
Viacom, a publicly held Delaware corporation headquartered in Massachusetts, operates a diversified entertainment and communications company whose core businesses include MTV Networks and Showtime Networks Inc. VEx. 1 at 190003W. MTV Networks comprises several basic cable television networks, including MTV, VH-1, and Nickelodeon/Nick at Nite. Showtime Networks Inc. operates Showtime, The Movie Channel and FLIX, three premium television networks. Viacom also participates in three joint venture cable services: Comedy Central, Lifetime and All News Channel. VEx. 1 at 190003W.
Viacom is controlled by Mr. Sumner M. Redstone ("Redstone"), its Chairman and Chief Executive Officer. The 70-year-old Mr. Redstone owns 91.7% of National Amusements, Inc. ("NAI"), which in turn owns approximately 85.2% of Viacom's voting Class A stock and approximately 69.2% of Viacom's nonvoting Class B stock. QEx. 6 at 14; QEx. 9 at V003318. Equity co-investors in the proposed Paramount-Viacom merger are NYNEX Corporation and Blockbuster Entertainment Corporation. QEx. 6 at 15. For the six-month period ending on June 30, 1993, Viacom had revenues of $966.4 million and net earnings of $1.02 million. Its total assets were then worth almost $4.5 billion. Id. at 16 (unaudited financial data). Smith Barney Shearson Inc. ("Smith Barney"), represented by its Chairman, Robert Greenhill, is Viacom's financial advisor in this transaction.
QVC, a Delaware corporation headquartered in West Chester, Pennsylvania, is a nationwide general merchandise retailer that operates one of the leading televised shopping networks in the United States. Through its merchandise-focused television program, QVC sells a wide variety of consumer products. Live program hosts describe and demonstrate the featured items, and viewers place orders with QVC by calling a toll-free number. QEx. 5 at 20. Allen & Company Inc., represented by Messrs. Herbert A. Allen and Enrique F. Senior, is the financial adviser to QVC in this transaction.
QVC's Chairman and Chief Executive Officer is Mr. Barry Diller ("Diller"). 4 QVC is currently controlled by a group of equity investors consisting of Liberty Media ("Liberty"), led by John Malone, Chief Executive Officer of Tele-Communications Inc. ("TCI"); Comcast, a public company largely owned by the Roberts family; and Mr. Diller. Id. Other significant investors in QVC include Advance Publications and Cox Enterprises. Pursuant to a Federal Trade Commission ("FTC") consent order, on November 11, 1993, QVC and Liberty entered into an agreement under which Liberty and its affiliates will terminate their interests in QVC if QVC merges with Paramount. Senior Aff. Ex. A at 4-5, 16 (QVC Offer To Purchase, November 12, 1993). BellSouth Corporation has made a commitment to join the QVC control group to replace Liberty's interest in QVC, and will then become QVC's largest shareholder. VEx. 9.
Although QVC is smaller than Viacom and Paramount, over the past few years it has grown substantially. QVC's total assets are worth $750 million. QVC's revenues increased from $193.2 million for fiscal year 1989, to $1.07 billion for fiscal year 1993. During that same period, QVC's net income increased from $9 million to an estimated $55 million for fiscal year 1993. QEx. 5 at 21 (unaudited financial data).
1. Paramount's Long-Term Strategic Objectives
Beginning in 1983, Mr. Davis led a management team devoted...
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