Court Dooms Paramount’s Hostile Bid for Time Inc. : Magazine, Warner Can Merge

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.”

Long-Term Planning

Paramount and some of Time’s shareholders had asked the three-justice panel to overturn a ruling by Chancery 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 Time’s biggest shareholders, said that because it was a unanimous ruling, the decision will 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 will continue to try to expand through acquisitions, mergers, joint ventures or partnerships.

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 2 p.m. PDT.

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 that they would rule in Time’s favor.

Shares Drop

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 Klein whether the Time shareholders 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.”

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

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