Shari Redstone won control of the media empire in 2018 after a tough battle with CBS. In the intervening years, he stayed to sell the family business, merging Viacom and CBS to put 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 may eventually have to defend in a courtroom: Is the deal under consideration good for all shareholders or just Ms. Redstone?
“Are these decisions being made in the best interest of Paramount in general?” asked Eric Talley, a Columbia law professor. “Or are they basically the types of decisions that will give Shari Redstone a good nut, but pretty much stick it to the other minority shareholders?”
The challenge lies in the company’s complex ownership structure. Ms. Redstone’s stake in Paramount is owned by National Amusements, a holding company she controls. He has approved a deal to sell National Amusements to Skydance, a media company controlled by Hollywood mogul and executive David Ellison. Due to the structure of the deal, the sale of National Amusements is contingent on reaching an agreement to merge Skydance with Paramount.
It is common for influential shareholders like Ms. Redstone to be paid extra for their shares, commonly called a “control premium.” Under the terms of the deal currently being discussed, Ms. Redstone would be paid for all of National Amusements — including its theater chain, its real estate holdings and its stake in Paramount — potentially creating different incentives for Ms. Redstone and all the others who own Paramount stock.
Some Paramount shareholders have expressed concerns that any transaction based on Paramount’s current declining stock price could devalue the company.
To confuse 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, the board may decide not to offer it, but that would mean going against an agreement that Ms. Redstone had already signed.
Special committees have played a leading and consequential role in some of the most notable transactions in US corporate history, such as RJ Reynolds’ acquisition of Nabisco and the acquisition of Dell. These managers are well aware that their actions may be scrutinized by the courts later to determine whether they worked to get the best deal possible.
“The special committee has a lot of power,” said Jim Woolery, founder of Woolery & Company, a consulting firm. “They’re at downside risk, but they want to negotiate — and be seen to negotiate — and move the thing along for Paramount shareholders.” Mr Woolery, who has worked on several special committees, called it a “chess game”.
The commission can take steps to minimize its risk, he said, such as allowing a short period for other bidders to make another bid for Paramount. The committee could also seek support from the majority of Paramount’s minority shareholders and be seen to promote the Skydance bid as best it can.
Ms. Redstone also has options to sell National Amusements herself, which she is prepared to pursue if Paramount’s board does not recommend a deal with Skydance. A person familiar with her priorities said she was aware of the potential legal battle and made sure to leave discussions about Paramount’s future to the company’s special committee. He is chairman of Paramount’s board but has resigned from the special committee.
Skydance and Paramount recently agreed to begin exclusive talks, a major step toward reaching a deal. 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 he was asking Paramount to work with another major company in a streaming joint venture in the United States.
A deal with Skydance could bring other opportunities to Paramount, including animation expertise and know-how from Mr. Ellison’s management team, which includes John Lasseter, a former Pixar executive. The plan calls for Skydance to supercharge 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 technology expertise that comes with Skydance’s connection to the Ellison family.
Another big selling point: Skydance has ownership stakes in Paramount’s most financially successful shows and movies, such as “Mission: Impossible” and “Top Gun,” and bringing the companies together would give the combined company more flexibility in managing the its franchise.
Apart from Skydance, only one other suitor has emerged. Apollo Global Management, an 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’s beyond perplexing to see the Paramount board ignore an all-cash offer for 100% of Paramount,” said media analyst Rich Greenfield.
Paramount decided not to engage with Apollo, with one person explaining that doing so could derail its advanced negotiations with Skydance without any certainty that Apollo’s letter would lead to a deal.
Mr. Woolery, the corporate counsel, said Paramount could use the Apollo offer to pressure Skydance to improve its offer. He added that, in situations like these, the certainty of a deal could matter more than the size of the offer. And the Apollo bid, which was not fully funded, would have undergone due diligence.
The Skydance deal may also be 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 Ms. Redstone owns — said he would prefer the company wait at least three years before considering a deal because he believed Paramount was currently undervalued.
Mr. Gabelli also said he wanted shareholders holding the same class of shares as Ms. Redstone to be offered the same terms as she was, essentially putting everyone on an equal footing.
“The voting stock that Shari controls in National Amusements is entitled to a premium,” Mr. Gabelli said. “The question to 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 in the first place. John W. Rogers Jr., whose firm, Ariel Investments, owned 1.8 percent of the company late last year, said he was reassured by the board’s creation of a special committee and its talks with management and the board of directors.
Mr. Rogers said he was open to an offer from Skydance because he believes both Skydance and Paramount management know that “the real value is being able to bring both companies together and take advantage of the synergies, the cost cuts’.
To get his backing, it’s important that any buyer “pays a price that reflects the underlying value of all the assets,” not its current share price, Mr. Rogers said. He said there could be additional ways buyers could create value for shareholders through a deal, such as spinning off some parts of the business, possibly to private equity firms.
