## Facts

- Paramount, a Delaware corporation, agreed to be acquired by Viacom through a two-step transaction (tender offer followed by a back-end merger).
- The merger agreement included deal protections favoring Viacom: a no-shop clause, a $100 million termination fee, and a stock option for roughly 19.9% of Paramount shares at a fixed price.
- As bidding escalated, the stock option’s economic value grew substantially, creating a large penalty if Paramount accepted a competing transaction.
- QVC made an unsolicited competing proposal offering a higher per-share price than the Viacom deal and later increased its bid further.
- Despite QVC’s higher price, Paramount’s board reaffirmed the Viacom transaction, declined to treat QVC’s proposal as a superior offer, and did not materially relax the deal protections.
- QVC and stockholder plaintiffs sued, alleging that Paramount’s directors breached fiduciary duties by favoring Viacom and adopting preclusive defensive measures.
- The Court of Chancery preliminarily enjoined enforcement of key deal protections and restrained Paramount from impeding QVC’s bid.
- Paramount, Viacom, and Paramount’s directors appealed on an expedited basis.

## Issues

1. Whether the Paramount–Viacom transaction constituted a change-of-control transaction triggering enhanced judicial scrutiny and Revlon duties to seek the best value reasonably available.
2. Whether Paramount’s board acted reasonably, in process and substance, in preferring Viacom and rejecting QVC’s higher bid under Unocal/Revlon enhanced scrutiny.
3. Whether the no-shop, termination fee, and stock-option devices were unreasonable, preclusive, or coercive restraints on the bidding process and stockholder choice.

## Decision

- The Delaware Supreme Court affirmed the preliminary injunction.
- The court held the transaction involved a sale of control because control would shift from a dispersed public market to a controlling stockholder group.
- Because Revlon duties were triggered, the board’s obligation was to pursue the best value reasonably available for stockholders.
- The court concluded the board did not carry its burden under enhanced scrutiny to justify its conduct and the deal protections as reasonable in relation to the circumstances.
- The court upheld injunctive relief that disabled key protective measures and prevented Paramount from obstructing consideration of QVC’s higher-value proposal, and remanded for further proceedings.

## Legal Principles

- A merger that results in a shift from dispersed ownership to a controlling stockholder or control group constitutes a change of control and triggers Revlon’s value-maximization duties.
- Under Unocal/Revlon enhanced scrutiny, directors bear the burden to show (1) a reasonable decision-making process and (2) defensive or transactional measures reasonably related to the objective of obtaining the best value reasonably available.
- In a sale-of-control setting, directors are not entitled to business judgment deference on the reasonableness of their actions; the court evaluates whether they acted reasonably, not whether they achieved perfection.
- Deal protections (no-shops, termination fees, lockups/options) are not per se invalid, but become unlawful if, singly or in combination, they are preclusive or coercive and materially impair a value-maximizing process.
- Once Revlon applies, considerations such as strategic preference or constituency effects cannot justify choosing a lower-value transaction over a higher-value alternative.

## Conclusion

The court treated the Paramount–Viacom transaction as a change-of-control sale, applied enhanced scrutiny, and affirmed an injunction against deal protections that improperly deterred superior bids, holding that directors in such transactions must act reasonably to secure the best value available for stockholders.


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