Apr 9, 2024 - Business

Paramount investors cry foul over Skydance talks

Chart: Axios Visuals

Paramount Global faces growing opposition from investors angry about deal talks with Skydance Media that they say will leave shareholders in the cold.

Why it matters: Shareholder resistance, if it builds further and spreads, could impact the exclusive merger talks between Skydance and Paramount and force Shari Redstone to entertain Apollo Management's all-cash offer.

Catch up quick: Paramount, the movie studio and owner of CBS, MTV and Comedy Central, is controlled by Redstone's National Amusements (NAI) vehicle.

  • A special committee assigned to oversee strategic options for the company is mulling a deal that would see Paramount acquire Skydance Media, an independent studio backed by KKR and RedBird Capital Partners, for around $5 billion in stock. NAI would receive around $2 billion in cash, according to a source.
  • That deal comes as Apollo Management has offered $26 billion to acquire all of Paramount, according to a separate source. Both sources have direct knowledge of the talks but were not authorized to speak publicly.

Driving the news: Two Paramount investors on Monday wrote separately to the board of directors, arguing the Skydance deal prioritizes Redstone's interests over that of company shareholders.

  • "The vast majority of shareholders would not receive a similar premium and would be forced to finance a speculative investment in Skydance in a transition significantly dilutive to shareholder value," Matrix Asset Advisors said in its letter, obtained by Axios.
  • In a letter reported by the New York Times, Blackwood Capital Management wrote: "You'll be cashing out one shareholder at a huge premium and leaving the rest of us stuck with heavily diluted shares in a very speculativeness venture. This violates the law as well as your judiciary duty to shareholders."
  • Paramount's stock fell 7% on Monday due, in part, to the investor pushback.

Yes, but: Both letters refer to what's been reported in the media, as no public information exists to date with specifics about what Skydance and Paramount are actually hashing out.

  • One of Axios' sources said that the long-term benefits of Paramount's Class B shareholders are very much under consideration in the deal talks. The source pointed to potential leaders of the new company, including Skydance CEO David Ellison and former NBCU chief Jeff Shell, now at RedBird, as examples of strong leadership that could propel the combined company.
  • A separate source added that the board currently prefers the strategic value and future potential of the Skydance deal over Apollo's takeover bid. Paramount, Skydance and Apollo declariclined to comment.

The big picture: Facing mounting debt and fierce competition in the streaming space, Paramount and Redstone are running out of time to strike a deal.

  • Paramount's stock has fallen more than 70% ever since Redstone reunited CBS and Viacom into one company in 2019.
  • The company's debt was cut to junk status late last month over concerns about the worsening picture of its TV business. Paramount has $15.9 billion in long-term debt, according to FactSet.

Reality check: Redstone's NAI owns 10% of Paramount's stock but controls the company via around 80% of Class A voting shares, so her say in whatever transaction emerges will go a long way.

What's next: If the special committee reviewing the Paramount-Skydance deal does not make details public during the exclusive discussions, more shareholders and opponents will emerge, pursuing public and legal routes to force a higher premium deal that gives more money to investors.

Editor's note: This story was updated to clarify sourcing in paragraph 12.

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