Just as David Ellison’s Skydance Media was nearing completion of its $8.4 billion acquisition of Paramount Global, Shari Redstone’s rollercoaster sale took another sharp turn.
Edgar Bronfman Jr., heir to the Seagram liquor fortune, this week persuaded Paramount’s independent board members to consider a competing bid for a minority stake in Paramount from the Redstone family’s investment company, National Amusements Inc. After spending weeks wooing investors, Bronfman submitted his proposal late Monday—two days before the bidding period closed—and then increased the bid to $6 billion.
Now, more competition is expected as Paramount’s Sept. 5 deadline to decide who will win the embattled media company that owns CBS, Comedy Central, Nickelodeon, MTV and the historic Melrose Avenue movie studios.
“It’s been a very strange process,” Charles Elson, founding director of the Weinberg Center for Corporate Governance at the University of Delaware, said Friday. “This company has provided more ‘theater’ than any other company I can think of. … It’s really amazing that we’re here.”
Paramount’s decision to extend Bronfman’s deadline did not sit well with the Skydance team.
Skydance lawyers sent a terse letter Thursday to a special committee of Paramount’s independent directors accusing Skydance of violating the terms of its agreement to acquire National Amusements and Paramount, according to three people who were not authorized to discuss the letter.
According to industry sources, Bronfman’s bid is unlikely to derail the Skydance deal.
But there are risks to Paramount’s involvement with another suitor later in the film.
“It doesn’t cost anything to do this,” said Melissa A. Schilling, a business professor at New York University’s Stern School of Business. “It creates a conflict with Skydance, and if they win, they’re going to come in angry. That’s not a good way to start a marriage.”
Edgar Bronfman Jr. in 2019.
(Michael Kovac/Getty Images)
Representatives for Redstone, Paramount, Bronfman and Skydance declined to comment.
Bronfman is trying to thread the needle created by a clause in the Skydance deal approved in July that set a 45-day “go shop” period during which the Paramount board could solicit a “superior” offer than Skydance.
Multiple sources have speculated that the Paramount board’s willingness to accept Bronfman’s offer stemmed from Redstone’s desire to protect his family from costly shareholder lawsuits. The sale process has already sparked litigation, and Paramount directors’ efforts to beat the bush could help show that there are no viable bidders beyond Skydance, and could help defend against shareholder lawsuits.
“This process is designed to check off the results of the shareholders’ due diligence so they can say, ‘We took care of you,’” Schilling said.
There may be other motives.
Skydance Group has deep pockets, including Redbird Capital Media, a decade-old company founded by tech mogul Larry Ellison, co-founder of Oracle Corp., and former Goldman Sachs partner Jerry Cardinale.
Paramount may be seeking additional concessions from Skydance Group, experts said.
But Skydance has already made two lucrative offers to Paramount and NAI.
There may be ongoing frustration over the terms of the Skydance deal. The biggest issue, according to shareholders, is the all-stock nature of the deal and David Ellison’s plan to integrate his small Santa Monica Skydance studio into Paramount.
David Ellison, founder and CEO of Skydance Media.
(Evan Agostini/Invision/AP)
Some shareholders have expressed frustration at Skydance’s $4.75 billion valuation, arguing that the entertainment company is undervalued.
Skydance co-owns some of Paramount Studios’ biggest blockbusters, including “Mission Impossible,” “Top Gun: Maverick” and “Star Trek.” Ellison’s company has also been building an animation studio under former Pixar creative executive John Lasseter.
Some investors complain that the deal undervalues Paramount shareholders and overvalues Skydance’s stake, further diluting Paramount’s stock value.
Schilling said it was a scenario that also played out in the failed merger of AOL and Time Warner 25 years ago.
“One of the things we learned from the AOL-Time Warner deal is that the company that started the deal may have been overvalued,” Schilling said. “AOL’s stock was very high because it was at the height of the Internet bubble, and AOL was able to turn that unrealized capital gain into a huge amount of cash.”
Skydance secured support from Paramount’s board by investing $4.5 billion in stock from Paramount investors, including nonvoting Class B shares priced at $15 per share.
Bronfman rushed to raise $1.7 billion to offer Class B investors $16 a share.
Both bids would inject $1.5 billion into Paramount’s crippled balance sheet, allowing the company to pay off its debt once the deal closes. Federal regulators would have to get involved, a process that is expected to take about a year.
Bronfman also said he would go along with Skydance’s $2.4 billion bid to buy National Amusements, which would net the Redstones $1.75 billion once the company’s roughly $650 million in debt is repaid.
The late Sumner Redstone made sure that the company formerly known as Viacom had two classes of stock, keeping his family firmly in control. The Redstones own 77 percent of Paramount’s voting Class A stock through National Amusements.
But most of the capital is held by non-voting Class B shareholders, and that’s where the problem lies, Elson said.
“Controlling shareholders can do whatever they want, as opposed to having to agree with other shareholders,” Elson said.
Shari Redstone.
(Martina Albertacci/Bloomberg via Getty Images)
Schilling said “go shop” clauses are rare in competitive auctions, but are fairly common in sales of financial companies or private companies.
Skydance has the ability to negotiate a deal that suits Bronfman’s terms.
Most experts expect Bronfman to have an uphill battle to get a contract from Ellison.
“It is incomprehensible why Bronfman (and members of his investor group) would pursue Paramount so aggressively if Redstone and the Paramount special committee did not want it,” Richard Greenfield, a media analyst at Lightshed Partners, wrote in a report earlier this week.
“Maybe Redstone would think twice about selling to Skydance/Ellison,” Greenfield wrote.
