Thompson and Schwartz on the Expansion of Delaware Revlon Jurisprudence under Paramount Communications, Inc. v. QVC Network, Inc.

Thompson and Schwartz on the Expansion of Delaware Revlon Jurisprudence under Paramount Communications, Inc. v. QVC Network, Inc.

The case of Paramount Communications, Inc. v. QVC Network, Inc., 637 A.2d 34 (Del. 1994) clarified Delaware law regarding directors’ Revlon duties. In addition to providing background and explaining how QVC has served to expand upon the established jurisprudence of the time, the authors of this commentary consider how a board of directors might breach their fiduciary duties under QVC
 
Authors Kenneth R. Thompson II, Senior Vice President and Global Chief Legal Officer for LexisNexis, a division of Reed Elsevier Inc., and Michael G. Schwartz, a partner at Vorys, Sater, Seymour and Pease LLP in Cincinnati, write:
 
     In the case of Paramount Communications, Inc. v. QVC Network, Inc., 637 A.2d 34 (Del. 1994), the Delaware Supreme Court examined the significance of a sale or change of control transaction in determining: (a) if Revlon duties apply, (b) the obligations of directors, (c) whether enhanced judicial scrutiny is used with such a transaction, and (d) what constitutes a breach of fiduciary duty for a board of directors when Revlon duties apply.
 
     Under the facts of QVC, the Paramount Board had the obligation to closely and critically examine both the Viacom and QVC offers, to act in good faith, to act with due care in gathering and examining all reasonably available material information associated with the sale of control of the corporation, and to negotiate "actively and in good faith with both Viacom and QVC." Such examination of information should be performed taking into consideration the changing circumstances as each potential acquirer altered their bids.
 
 
     Enhanced judicial scrutiny and the duty to seek the highest value reasonably available for stockholders in a sale or change of control scenario were established for several years prior to the Delaware Supreme Court issued its opinion in QVC. This case served to expand upon the established jurisprudence of the time by: (a) holding definitively that a board of directors involved in a sale or change of control transaction must adhere to their Revlon Duties, (b) finding that independent and disinterested directors must make reasonable efforts to gather information concerning bids for a corporation and cannot escape enhanced judicial scrutiny by relying upon misinformation presented to them, (c) establishing that there is "no single blueprint" that directors must follow when selling a corporation, but should consider all facts and circumstances, and (d) holding that directors are only required to make reasonable decisions, not perfect decisions, and the Delaware courts would not seek to impose their business judgment on the directors of a corporation whose decisions are reasonable.
 
(citations and footnotes omitted)
 
 
 
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