Paramount Communications Inc. v. QVC Network Inc., 637 A.2d 34 (Del. 1994) (Supreme Court of Delaware)
Paramount v. QVC is a cornerstone of Delaware corporate law that crystallizes when and how heightened fiduciary duties—popularly known as Revlon duties—apply in mergers and acquisitions.
When a target board approves a merger that will place the post-transaction company under the control of a single stockholder, do Revlon duties apply, and did Paramount's board breach its fiduciary duties by favoring Viacom and adopting preclusive deal protections rather than reasonably seeking the best value reasonably available for Paramount's stockholders?
Under Delaware law, when directors adopt defensive measures (Unocal) or undertake a transaction that constitutes a sale or change of control (Revlon), their actions are reviewed under enhanced scrutiny. In the sale-of-control context, directors have a fiduciary duty to maximize immediate stockholder value by seeking the best price reasonably available through a fair and informed process. The board must demonstrate: (1) it was adequately informed and acted in good faith; and (2) its decisions were reasonable in relation to the circumstances, including that deal protections do not unduly preclude or coerce superior bids. No-shop clauses, termination fees, and lock-ups are not per se invalid, but they must be reasonable, include an effective fiduciary out, and cannot foreclose stockholders' ability to realize higher value. Directors also owe a duty of full and fair disclosure of all material facts when soliciting stockholder action.
The merger between Paramount and Viacom involved a change of control, thereby triggering Revlon duties. Paramount's board failed to carry its burden under enhanced scrutiny to show it acted reasonably to secure the best value reasonably available. The Delaware Supreme Court affirmed the preliminary injunction enjoining enforcement of the preclusive deal protection measures and delaying the stockholder vote pending adequate disclosures.
Paramount v. QVC is the leading Delaware authority on when Revlon duties attach and how courts scrutinize deal protection devices. It clarifies that a transaction resulting in a controller at the combined company—i.e., a change of control—triggers the duty to maximize value. The case sets the modern framework for evaluating no-shops, termination fees, and lock-ups under enhanced scrutiny, requires effective fiduciary outs, and underscores robust disclosure obligations. For law students, QVC is indispensable for understanding the interplay among Unocal, Revlon, and Time-Warner, and it remains a foundational case in corporate governance and M&A practice.