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URGENT Delaware Court Rules In Favor Of Time-Warner Merger

July 24, 1989

WILMINGTON, Del. (AP) _ The Delaware Supreme Court dealt a fatal blow to Paramount Communications Inc.’s $12.2 billion hostile bid for Time Inc. today, upholding a lower court ruling allowing Time to proceed with a $14 billion tender offer for Warner Communications Inc.

The ruling by the three-judge panel paves the way for Time to buy Warner, creating the world’s largest communications concern, Time Warner Inc.

Paramount responded to the ruling by dropping its $200-a-share bid, seven weeks after it was announced.

The court’s unanimous ruling, read by Justice Henry Horsey, was brief: ″We find no error of law by the Court of Chancery.″

Paramount and some of Time’s shareholders had asked the three-justice panel to overturn a ruling by Chancery Court Judge William T. Allen. The judge said the proposed Time-Warner deal, which was announced in March, three months before Paramount launched its bid, was the result of long-term business planning and that Paramount and Time’s shareholders could not interfere.

Michael Klein, an attorney for some of the Time shareholders, said that because it was a unanimous ruling, the decision would not be appealed to the full state Supreme Court, which has five justices.

Paramount said in a statement it was ending its bid for Time but would continue to try to expand through acquisitions, mergers, joint ventures or partnerships.

″We believe in making bold moves when they are in the best interest of Paramount Communications shareholders,″ Paramount Chairman Martin Davis said. ″We have just demonstrated that in our offer for Time ...″

Time attorney Robert Joffe said Time would proceed as planned with its $70 a share tender offer for Warner, which was scheduled to expire at 5 p.m. EDT.

The Supreme Court widely had been expected to uphold Allen’s ruling, and the justices’ close questioning of the Paramount and shareholder attorneys during the two-hour hearing indicated they would rule in Time’s favor.

Investors sold off Time stock as the hearing - which was televised live by Cable News Network - proceeded. The company’s shares were down $1.25 to $137.25 a share in New York Stock Exchange trading after the decision was announced.

Warner was up $1 to $66.50 a share and Paramount was up 87 1/2 cents to $58.37 1/2 a share.

At one point in today’s hearing, Justice Andrew G.T. Moore asked of Michael Klein, an attorney for some of Time’s biggest shareholders, whether they were demanding that ″we must hold that a board is hostage to any person who walks in and makes a bid no matter what the long-term plans are.″

Paramount attorney Melvyn Cantor contended today that Delaware law required the Time board to inquire into Paramount’s bid, and reminded the three-judge panel that the Supreme Court in a previous case had ″held that the failure to inquire is gross negligence.″

Stuart Savett, representing some of the shareholders, accused the Time board of passively sitting by while company management used the Warner deal to entrench itself.

The justices asked Joffe, the Time attorney, why the $70 a share tender offer for Warner - which replaced an earlier stock-swap merger plan - was not submitted to a vote by Time shareholders at the company’s annual meeting in June.

Joffe said a vote was not required because the deal did not involve the issuing of new Time stock. Furthermore, he said, after Paramount launched its bid on June 6, the market for Time stock was in disarray and the price of the shares was gyrating.

″This was hardly the situation to have an unimpassioned evaluation of future value and get a fair vote,″ he said.

Joffe contended Time’s plans to merge with Warner would give shareholders greater value in the long term than Paramount’s $200 a share offer.

In its tender off for Warner, Time will pay $70 per share in cash for half of Warner’s 200 million outstanding shares.

Time will later exchange $70 in a combination of cash and securities for the remaining shares in what is called the deal’s ″back end.″ The back end could take several months to complete.

Paramount argued in a brief filed with the Supreme Court last week that Allen’s decision allowed the Time board to proceed with the merger with Warner although the deal was economically inferior to the Paramount offer and therefore detrimental to Time shareholders.

Paramount contended that Allen’s ruling would allow directors to reject any offers if they could point to some long-term corporate strategy.

Time, in its brief, defended the right of its directors to determine the company’s future course, and said previous Delaware Supreme Court cases allow a board to refuse to consider offers that threaten long-term plans.

The media giant argued that its long-term strategy should not be instantly negated by the launching of a hostile tender offer.

Both companies claimed that the Delaware Supreme Court’s 1985 ruling in a case involving Unocal Corp. and takeover strategist T. Boone Pickens Jr. supported their arguments. That decision was written by Justice Andrew G.T. Moore, one of the three jurists who had been scheduled to hear the Time case.

Allen’s decision effectively gave corporate directors leeway in rejecting offers and in setting a course for their companies. There was widespread speculation prior to the Supreme Court hearing today that an overturned decision would radically change the climate for friendly mergers in the United States.

Many of the biggest U.S. corporations are incorporated in Delaware and subject to its laws, and other states have modeled their statutes after Delaware’s.

Separately, the Wall Street Journal reported today that about 500 Warner executives and employees would be paid a total of about $677 million under stock, option and bonus plans if the deal with Warner goes through.

The Journal said the payments - disclosed in minutes of a Warner board meeting June 15 - amounted to the largest compensation package for employees of a company involved in a takeover.

Warner Chairman Steven Ross would receive $193 million in payments and would also receive options on 1.8 million Time Warner shares, the Journal said.

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