Majority owner Shari Redstone is “only looking out to maximize the value of Shari Redstone” says one large shareholder, who says the board needs to also consider Apollo Global’s bid
As Paramount and Skydance inch closer towards a deal that would give David Ellison’s media company control through Shari Redstone and National Amusements’ stake, shareholders are expressing concern that a deal could decrease their ownership stakes and close off better options for a sale.
For a deal to go through, it must win approval from Paramount’s special committee, which was formed in January to balance competing interests in the different companies. But the committee faces the difficult challenge of striking a balance between a deal that is in line with the interests of Redstone — Paramount’s majority shareholder through her stake in National Amusements — while upholding its fiduciary responsibility to the rest of its shareholders, some of whom argue that Apollo Global Management’s competing bid is being unfairly ignored.
“Shari Redstone is literally only looking out to maximize the value of Shari Redstone, which is terribly disconcerting,” David Katz, president and chief investment officer of Matrix Assets Advisers, which owns more than 350,000 Paramount shares, told TheWrap. “The shareholder base in aggregate would like everybody to be treated fairly and be on a level playing field.”
Other investors including Gabelli Asset Management CEO Mario Gabelli, who owns 5 million shares of Paramount’s voting stock, and John W. Rodgers Jr., whose firm, Ariel Investments, owned 1.8% of Paramount’s shares as of the end of last year, have expressed similar concerns.
And on Monday, Justin Evans of Blackwood Capital Management wrote the Paramount board of directors to complain about the looming deal. “The last thing the company shareholders need is yet another silver-spooned movie enthusiast to run our entertainment company into the ground,” Evans wrote.
If Redstone attempts to move forward with a Skydance deal against the recommendation of the special committee, lawsuits from shareholders could get “nasty and expensive,” Stefano Bonini, an associate professor of finance at Stevens Institute of Technology, told TheWrap.
An insider with knowledge of Redstone’s thinking told TheWrap that “the special committee has a lot of power” and that its recommendation “is hard to overrule as a board or majority owner, because you have to show why your reason to overrule it is better than the special committee’s special investigation. If you were to overrule it as a board member, you’d need a good reason to sway shareholders.”
A “sub-optimal” bid
On Monday, Matrix, which owns 355,445 Paramount shares on behalf of its clients and itself and has over $1 billion in assets under management, penned a letter to the media conglomerate’s board in which it knocked Skydance’s bid as “sub-optimal.”
The firm argues that while it may be a “home run” for Redstone that would monetize her controlling stake for cash at a “significant premium,” it would be at the expense of the company’s other shareholders and “detrimental” to Paramount’s value.
Matrix also said it is “especially galling” that Paramount’s independent committee has not seriously considered a $26 billion cash offer from Apollo made on March 31, including assumption of debt. The private equity firm should be given the same deference as Skydance to perform due diligence and confirm its financing, Matrix added, noting that the “valuation certainty of a cash bid is vastly superior to a notional valuation that Skydance is assuming for itself in the second-step transaction, a clear conflict of interest.”
In an interview with TheWrap, Katz estimated that the Apollo deal could result in anywhere from $18 to $21 per share for Paramount shareholders, while Skydance’s deal would be about $11 per share. The estimate accounts for a $3-per-share premium for the voting stock. (National Amusements owns 77.3% of its Class A (voting) common stock and 5.2% of its Class B common stock).
Legal risk
The insider said it was likely that Redstone was most interested in negotiating with David Ellison because he “cares” about Hollywood and the media industry. “He’s more than just the numbers, and that matters to Shari, and they’ve also indicated they’re not necessarily in favor of breaking up the company, which many just assume they should,” the insider added.
But Redstone is potentially exposing Paramount to shareholder lawsuits. “It would be very easy to argue you had an independent committee that said, ‘Wait, pause, you need to gather all the offers and all the possible information to make sure that the deal you’re approving is the deal that maximizes the value for everyone,’” said Bonini, the finance professor. “And you decided to ignore it and thereby you determine a loss for shareholders or financial damage, which is exactly what a security class action lawsuit is all about.”
