Shari Redstone gained control of her media empire in 2018 after a tough battle with CBS. In the years that followed, she hesitated to sell the family business and merged Viacom and CBS to bring iconic franchises like “60 Minutes” and “Top Gun” under one roof.
Now Ms. Redstone has decided to sell her controlling stake in Paramount, a decision that could put her at odds with some of the company’s shareholders.
The question Paramount’s board must answer – and potentially defend in court: Is the proposed deal good for all shareholders or just Ms. Redstone?
“Are these decisions generally made in the best interests of Paramount?” said Eric Talley, a law professor at Columbia. “Or are these essentially the kind of decisions that just give Shari Redstone a nice nut, but leave it largely to the other minority shareholders?”
The challenge lies in the company’s complicated ownership structure. Ms. Redstone’s stake in Paramount is owned by National Amusements, a holding company that she controls. She has agreed to a deal to sell National Amusements to Skydance, a media company controlled by tech scion and Hollywood executive David Ellison. Due to the structure of the deal, the sale of National Amusements is contingent on a corresponding agreement to merge Skydance with Paramount.
It is common for influential shareholders like Ms. Redstone to receive an extra payment for their shares, commonly referred to as a “control premium.” Under the terms of the deal currently being discussed, Ms. Redstone will be paid for all of National Amusements – including its chain of theaters, its real estate and its controlling interest in Paramount – potentially creating different incentives for Ms. Redstone and any other owners of Paramount stock.
Some Paramount shareholders have expressed concerns that any transaction based on Paramount’s currently declining stock price could undervalue the company.
To consider the options, Paramount’s board formed an independent committee advised by Centerview Partners and the law firm Cravath, Swaine & Moore. If the terms are not attractive to the board, it may decide not to recommend them, but that would mean opposing a deal that Ms. Redstone has already signed.
Special committees have played major and subsequent roles in some of the most notable transactions in U.S. corporate history, such as RJ Reynolds’ acquisition of Nabisco and the Dell acquisition. These directors are aware that their actions may later be scrutinized by the courts to determine whether they worked to achieve the best possible deal.
“The special committee has great power. “They’re risk-averse, but they want to negotiate – and be perceived as negotiating – and move the needle for Paramount shareholders,” said Jim Woolery, founder of the consulting firm Woolery & Co. Mr. Woolery, who has worked with many specialty committees called it’s a “chess game”.
The committee could take steps to minimize its risk, Woolery said, such as giving other bidders a short period of time to make another offer for Paramount. The committee could also try to secure the support of a majority of Paramount’s minority shareholders and push Skydance’s offer as best as possible.
Ms. Redstone also has options to sell National Amusements herself and is prepared to pursue that option if Paramount’s board does not recommend a deal with Skydance. A person familiar with Ms. Redstone’s priorities said she was aware of the possibility of litigation and was careful to leave discussions about Paramount’s future to the company’s special committee. She is chairman of Paramount’s board but has recused herself from the special committee.
Skydance and Paramount recently agreed to enter into exclusive discussions, an important step towards an agreement. Ms. Redstone and National Amusements are encouraged by Mr. Ellison’s vision for the combined company, according to the person familiar with their priorities, who said it would require Paramount to partner with another major company for a streaming joint venture to merge with the United States.
A deal with Skydance could open up more opportunities for Paramount, including technology and animation expertise from Mr. Ellison’s management team, which includes former Pixar executive John Lasseter. The plan calls for Skydance to boost Paramount’s streaming capabilities, improve personalization through better algorithmic recommendations and increase efficiency through better deals with data providers. Ms. Redstone is encouraged by the access to capital and technical expertise that comes from Skydance’s association with the Ellison family.
Another key selling point: Skydance has a stake in Paramount’s most financially successful series and films, such as “Mission Impossible” and “Top Gun,” and combining the companies would give the combined company more flexibility in managing its franchises.
In addition to Skydance, only one other applicant emerged. Apollo, the investment firm with more than $500 billion in assets under management, sent a letter to Paramount late last month expressing interest in fully acquiring Paramount for $26 billion.
“It is beyond confusing to see Paramount’s board ignore a cash offer for 100 percent of Paramount,” said Rich Greenfield, a media analyst.
Paramount decided not to contact Apollo, and one person stated that this could have derailed ongoing negotiations with Skydance without any certainty that Apollo’s letter would lead to a deal.
Mr. Woolery, the management consultant, said Paramount could use Apollo’s offer to pressure Skydance to improve its offering. He added that in situations like these, the certainty of a deal can be more important than the size of the offer. And Apollo’s offer, which was not fully funded, should have been subject to careful consideration.
The Skydance deal could also be unpopular with some of Paramount’s most influential shareholders. Mario Gabelli, whose company owns 10 percent of Paramount’s voting shares – the same class of stock as Ms. Redstone – said he would prefer the company wait at least three years before considering a deal because he believes Paramount is currently undervalued.
Mr. Gabelli also said he wants shareholders who own the same class of stock as Ms. Redstone to be offered the same terms as Ms. Redstone, essentially putting everyone on equal footing.
“The voting shares that Shari controls in National Amusements are entitled to a premium,” Mr. Gabelli said. “If it does so, it will decide the question of whether the control premium applies to all voting shares and not just those owned by National Amusements.”
Not everyone is against a deal from the start. John W. Rogers Jr., whose firm Ariel Investments owned 1.8 percent of the company’s stock at the end of last year, said he was reassured by the board’s appointment of a special committee and by his discussions with management and the board.
Mr. Rogers said he would be open to an offer from Skydance because he believes both Skydance and Paramount management know that “the real value is in combining both companies and benefiting from the synergies and cost reductions.” .
To maintain his support, it is important that any buyer “pays a price that reflects the underlying value of all assets,” rather than the current share price, Mr. Rogers said. He said there are other ways for buyers to create value for shareholders through a deal, such as spinning off certain parts of the company, possibly to private equity firms.
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2024-04-04 22:57:01
www.nytimes.com
