The Delaware Supreme Court formally agreed Monday to hear an appeal by Paramount Communications Inc. and Viacom Inc. of a lower court decision that has imperiled their merger agreement. If upheld, the ruling would strip the Paramount board of the defenses it could have employed to rebuff QVC Network Inc.'s unwelcomed tender offer, potentially leading to a new round of bidding.
Viacom and QVC agreed to freeze their bids, however, until the three-judge panel hears the case Dec. 9. And Paramount, which is incorporated in Delaware, said it “will defer considering future conversations with QVC, if any, until the court renders its decision on appeal.”
Paramount maintains that it agreed to a merger with Viacom for long-term strategic reasons and had no intention of placing itself on the auction block. Those arguments echo the rulings of the Delaware courts four years ago, when Paramount was denied the chance to break the merger of Time Inc. and Warner Communications Inc., even though Paramount was offering a cash premium to Time shareholders.
With great interest, lawyers in the case Monday learned the identity of the three-judge panel assigned to hear the appeal. Two of the judges--Andrew G.T. Moore II and Randy J. Holland--helped decide the fateful Time Warner case in July, 1989, which seemed to give broad latitude to corporate directors trying to fend off unwanted takeover bids.
That might be interpreted as a setback for QVC. On the other hand, Paramount’s lawyers in the appeal will find themselves in the potentially awkward position of trying to tell Moore and Holland what they meant by their own Time Warner ruling.
QVC’s victory in its lawsuit last Wednesday was the second such triumph for litigator Herbert M. Wachtell, who also argued successfully for Warner Communications Inc. in the 1989 case.
Likewise, Wednesday’s ruling was a second blow to Paramount’s longtime New York law firm--Simpson, Thacher & Bartlett--which lost Paramount’s case when it bid unsuccessfully for Time Inc. four years ago.
Paramount closed at $78.50 on the New York Stock Exchange, down $1.375. On the American Stock Exchange, Viacom Class A shares eased 37.5 cents to close at $49.375, while Viacom Class B shares closed at $43.875, down 37.5 cents. In Nasdaq, QVC closed at $47.625, unchanged.
Despite the lull in trading, speculators continued to bet that Viacom and QVC will attempt to line up additional financing in order to raise the bids if necessary after the court rules.
QVC’s bid exceeds Viacom’s by about $1 billion, although the values fluctuate daily because each bidder is offering securities as well as cash.
E. Norman Veasey, chief justice of the Delaware Supreme Court, will be the third judge hearing Paramount’s appeal next week. Veasey came to the bench 19 months ago from the Delaware law firm Richards, Layton & Finger, which is helping to represent Paramount. He is not expected to recuse himself.
Veasey, 60, is a Delaware native who was educated at Dartmouth and the University of Pennsylvania Law School but returned to Wilmington to practice for 34 years, until his appointment to the state Supreme Court for a 12-year term.
Holland, 46, also a graduate of the University of Pennsylvania Law School, was appointed to the court in 1986. Moore, 58, is a New Orleans native who has served on the court since 1982 and chaired the Tulane Corporate Law Institute since 1988.