Paramount, Skydance deal draws shareholder scrutiny

As expected, Paramount Global shareholders are challenging the terms of the struggling company’s proposed blockbuster merger with Skydance Media.

The first lawsuit arrived Wednesday, three weeks after Paramount board members — including controlling shareholder Shari Redstone — approved an $8-billion, two-phase deal with tech scion David Ellison and his backers. The deal, which must be approved by regulators, would buy out the Redstone family investment vehicle National Amusements Inc. and its controlling shares in Paramount, and then combine Ellison’s Santa Monica-based Skydance with the larger firm.

Shareholder Scott Baker filed the proposed class action lawsuit in Delaware court. His suit alleges that Redstone was determined to ram through an unfair merger, which gives her family a premium for their Class A voting shares. The Skydance group has agreed to buy out the family, who are descendants of the late mogul Sumner Redstone, to take control of the publicly traded media company.

Transferring the Redstones’ voting stock in Paramount would give Ellison, son of billionaire Oracle Corp. co-founder Larry Ellison, control of a media operation that includes Paramount Pictures, broadcast network CBS and cable channels MTV, Comedy Central, BET and Nickelodeon.

Baker’s suit argued that Paramount’s regular Class B shareholders had no say in the matter. The proposed deal terms will lead to Class B shareholders suffering $1.645 billion in damages, the suit alleges.

“The principal reason for the merger is to cash out Redstone’s floundering Paramount investment — and at a substantial premium to what will be received by other stockholders,” Baker’s suit said. “Additionally, the Merger will allow Redstone to pay down NAI’s fast-maturing debt.”

The deal envisions setting aside money to pay Class B shareholders $15 per share if they want to cash out.

“There is not enough cash in the deal to buy out all of the non-NAI Class B shares,” Baker argued. “Instead, these shareholders will get a mix of cash and Class B stock in the merged entity... only worth $12.23 per Paramount Class B share.”

The deal’s participants long recognized that the transaction would draw lawsuits. Paramount’s B-class shareholders do not have voting rights, setting up a dual class system that has long given the Redstone family a tight grip over the company’s affairs.

Because of the threat of litigation, the deal’s architects designed a 45-day “go shop” provision, which allows Paramount to entertain other offers that may be higher than Skydance’s. That period ends next month.

Skydance declined comment.

Earlier, a Rhode Island state employees fund took steps to challenge the merger.

Ellison is expected to lead the new company as its chief executive. Under terms of the deal, Skydance and its financial partners RedBird Capital Partners and private equity firm KKR have agreed to provide a $1.5-billion cash infusion to help Paramount pay down debt. The deal sets aside $4.5 billion to buy shares of Paramount’s Class B shareholders who are eager to exit.

The Redstone family would receive $1.75 billion for National Amusements, which in addition to Paramount shares owns a regional movie theater chain. The subsequent all-stock merger of Skydance into Paramount values the former at $4.75 billion.

The proposed handoff signals the end of the Redstone family’s nearly 40-year reign as one of America’s most famous and fractious media dynasties. The late Sumner Redstone’s National Amusements was once valued at nearly $10 billion, but pandemic-related theater closures, last year’s Hollywood labor strikes and a heavy debt burden sent its fortunes spiraling.

Bloomberg Law first reported on Baker’s lawsuit.