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Shari Redstone gained control of her media empire in 2018 after a bitter fight with CBS. In the years since, she put off selling the family business, merging Viacom and CBS to put iconic franchises like “60 Minutes” and “Top Gun” under one roof.
Now, Redstone has decided to sell her majority stake in Paramount, a decision that could put her in conflict with some of the company’s shareholders.
The question Paramount’s board must answer, and will eventually have to defend in court: Is the deal under consideration good for all shareholders, or just for Ms. Redstone?
“Are these decisions made in the best interest of Paramount as a whole?” said Eric Talley, a law professor at Columbia. “Or are they basically the type of decisions that will only deal a good blow to Shari Redstone but will practically leave it to the other minority shareholders?”
The challenge lies in the company’s complicated ownership structure. Redstone’s stake in Paramount is owned by National Amusements, a holding company she controls. She has backed a deal to sell National Amusements to Skydance, a media company controlled by technology scion and Hollywood executive David Ellison. Due to the structure of the deal, the sale of National Amusements is dependent on reaching a related deal for Skydance to merge with Paramount.
It is common for influential shareholders like Redstone to be paid more for their shares, commonly called a “control premium.” Under the terms of the deal currently being discussed, Redstone will receive payment for all of National Amusements’ activities, including its movie theater chain, its real estate and its majority stake in Paramount, potentially setting up different incentives for Redstone and all other Paramount owners. stock.
Some Paramount shareholders have expressed concern that any transaction based on Paramount’s currently dwindling stock price could undervalue the company.
To analyze the options, Paramount’s board of directors has formed an independent committee, advised by Centerview Partners and the law firm Cravath, Swaine & Moore. If the terms are not attractive to the board, they can decide not to recommend them, but that would mean opposing a deal Redstone already signed.
Special committees have played a leading and consequential role in some of the most notable transactions in American corporate history, such as RJ Reynolds’ acquisition of Nabisco and its purchase of Dell. These directors are well aware that their actions may later be scrutinized by the courts to determine whether they worked to get the best deal possible.
“The special committee has a lot of power. They are risk-averse, but they want to negotiate (and be seen to negotiate) and achieve change for Paramount shareholders,” said Jim Woolery, founder of the advisory firm Woolery & Co. Woolery, who has worked with many special ventures. The committees called it a “chess game.”
There are steps the committee can take to minimize its risk, Woolery said, such as allowing a brief period for other bidders to make another offer for Paramount. The committee could also try to gain the support of the majority of Paramount’s minority shareholders and be seen as driving Skydance’s bid as best it can.
Redstone also has options to sell National Amusements itself, something she is willing to do if Paramount’s board does not recommend a deal with Skydance. A person familiar with Redstone’s priorities said she was aware of the potential for litigation and had been careful to leave discussions about Paramount’s future to the company’s special committee. She is the chairwoman of Paramount’s board of directors, but recused herself from the special committee.
Skydance and Paramount recently agreed engage in exclusive talks, a significant step towards reaching an agreement. Redstone and National Amusements are encouraged by Ellison’s vision for the combined company, according to the person familiar with his priorities, who said it calls for Paramount to partner with another major company in a streaming joint venture in the United States. .
A deal with Skydance could bring other opportunities to Paramount, including the technology and animation expertise of Ellison’s management team, which includes former Pixar executive John Lasseter. The plan calls for Skydance to boost Paramount’s streaming capabilities, improving personalization with better algorithmic recommendations and making it more efficient through better deals with data providers. Ms. Redstone is encouraged by the access to capital and technological know-how that comes with Skydance’s partnership with the Ellison family.
Another big selling point: Skydance has stakes in Paramount’s most financially successful shows and movies, such as “Mission Impossible” and “Top Gun,” and uniting the companies would give the combined company greater flexibility in managing its franchises.
Besides Skydance, only one other suitor has emerged. Apollo, the investment firm with more than $500 billion under management, sent a letter to Paramount late last month expressing interest in acquiring all of Paramount for $26 billion.
“It is beyond disconcerting to see Paramount’s board of directors ignore a cash offer for 100 percent of Paramount,” said Rich Greenfield, a media analyst.
Paramount decided not to commit to Apollo, with one person explaining that doing so could have derailed its negotiations with Skydance without certainty that Apollo’s letter would lead to a deal.
Woolery, the corporate counsel, said Paramount could use Apollo’s offer to pressure Skydance to improve its offer. He added that, in situations like these, the certainty of a deal may matter more than the size of the offer. And Apollo’s offer, which was not fully funded, would have been subject to due diligence.
The deal with Skydance may also prove unpopular with some of Paramount’s most influential shareholders. Mario Gabelli, whose company owns 10 percent of Paramount’s voting stock (the same class of stock that Redstone owns), said he would prefer the company wait at least three years before considering a deal because he believes Paramount is currently undervalued.
Gabelli also said she wants shareholders who own the same class of stock as Redstone to be offered the same terms as her, essentially putting everyone on equal footing.
“The voting shares, which Shari controls in National Amusements, are entitled to a premium,” Gabelli said. “The question that will be decided if it does so is whether the control premium applies to all voting shares and not just those held by National Amusements.”
Not everyone is opposed to a deal from the beginning. John W. Rogers Jr., whose firm, Ariel Investments, owned 1.8 percent of the company’s shares at the end of last year, said he was reassured by the board’s creation of a special committee and for his conversations with management and the board.
Rogers said he was open to an offer from Skydance, as he believes both Skydance and Paramount management know that “the real value is being able to bring both companies together and benefit from synergies and cost cuts.”
To gain their support, it is important that any buyer “pay a price that reflects the underlying value of all assets,” not the current price of its shares, Rogers said. He said there could be additional ways buyers could create value for shareholders through a deal, such as spinning off certain parts of the business, possibly to private equity firms.
