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Delaware Court Affirms Directors’ Rights in Time-Warner-Paramount Case

February 28, 1990

NEW YORK (AP) _ The Delaware Supreme Court, in a lawsuit from last year’s Time-Warner- Paramou nt takeover battle, affirmed the right of a board of directors to determine a company’s future even by rejecting a lucrative buyout.

The written ruling Tuesday came seven months after the state’s highest court upheld a Chancery Court decision allowing Time Inc. to proceed with its $14 billion takeover of Warner Communications Inc. and barring Paramount Communications Inc. and Time stockholders from interfering with the deal.

The case was heard in Delaware because all three companies - like many of the biggest U.S. corporations - are incorporated there, and is seen as likely to affect other merger proposals.

The plaintiffs wanted to force the Time board to consider Paramount’s $12.2 billion bid, which would have given Time stockholders $200 a share in cash.

But, Delaware’s highest court said, ″A board of directors, while always required to act in an informed manner, is not under any per se duty to maximize shareholder value in the short term even in the context of a takeover.″

In March 1989, Time and Warner announced plans to merge in a friendly exchange of stock. But in June, less than three weeks before shareholders were to vote on the deal, Paramount launched a hostile $10.7 billion bid that it later sweetened to $12.2 billion.

Time and Warner countered by amending their plans to provide for Time’s $14 billion tender offer for Warner. In Chancery Court in Delaware, Chancellor William T. Allen decided in favor of Time and Warner.

The Supreme Court sustained Allen’s ruling in an oral decision in late July, saying it would issue a written opinion in the future.

Time and Warner completed their merger on Jan. 10.

In his ruling, Allen gave corporate directors wider latitude in defending against unwanted takeover bids. While affirming his decision, the Supreme Court disagreed with his concern about Paramount’s disrupting Time’s long- range plans.

″We think it unwise to place undue emphasis upon long-term vs. short-term corporate strategy,″ Justice Henry R. Horsey wrote.

″Directors generally are obliged to charter a course for a corporation which is in its best interest without regard to a fixed investment horizon,″ he said.

Paramount and Time shareholders contended that Time essentially put itself up for sale with its initial Warner merger agreement, partly on grounds that Warner shareholders at that time would have ended up holding more than 60 percent of the stock in Time Warner Inc.

Horsey dismissed that argument, saying there was no substantial evidence that Time’s board, in negotiating with Warner, made the breakup of Time Inc. inevitable.

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