The ruling by the appeals panel, which upholds a 24 November lower court ruling, comes as a serious blow to Paramount management, which has agreed to a friendly dollars 10.2bn merger with Viacom, a large US cable company.
But the court found that Paramount's board had failed in its fiduciary duties by agreeing to sell control of the company without considering a rival dollars 11bn tender offer by QVC Network, another cable channel.
The court said a series of anti-takeover measures adopted by Paramount to fend off hostile bids were 'unreasonable', notably a 'no-shop' clause preventing directors from seeking information about offers that potentially gave shareholders better returns. The appeals court agreed the measures should be struck down, creating a level playing field for the two tender offers now on the table.
QVC, whose offer was to have expired last night, immediately announced plans to extend the deadline on its dollars 90-a-share offer, placing the ball firmly in Viacom's court. Analysts said Viacom must now raise as least the cash portion, if not the total value of its offer, if its bid is to win the support of Paramount shareholders.
Paramount's directors had defended their decision by arguing that a merger with Viacom was in the best long-term strategic interests of the media conglomerate and its shareholders. But the appeals court said the deal, unlike the similarly controversial merger of Time Inc and Warner Communications four years ago, would result in ownership being transferred from public shareholders to an individual - in this case Viacom's chief executive, Sumner Redstone, - and that once in control he would be free to dispose of the Paramount assets as he pleased.
Under the circumstances, the court said, Paramount's directors had an obligation to ensure that shareholders received the best possible price for their holdings, and that they were not free 'to bargain away their fiduciary duty to inform themselves about alternative offers', as they did when they agreed to terms that excluded Viacom's rivals.
Legal experts said the court's decision appeared to establish a new standard in US takeover deals - transfer of ownership - for overruling the business judgement of a company's directors .Reuse content