Skydance Media is urging Paramount Global to stop considering a proposal by an investor group led by Edgar Bronfman Jr. to buy control of the company, threatening to withdraw its own merger offer.
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| Paramount and Skydance. Credit: Getty Images. |
In a letter from its lawyers on Thursday, August 22, Skydance told the committee of Paramount’s board of directors formed to steer the M&A process that it had breached the terms of a merger agreement the two companies announced last month. The deal includes a “go-shop” provision allowing the committee to pursue a potentially “superior” offer. It did so by entertaining the Bronfman-led bid and then extending the go-shop by 15 days, through September 5. It originally was scheduled to expire on Wednesday night.
Skydance contends that Bronfman’s bid, which would see the media veteran and Seagram heir as well as nearly two dozen backers put in about $6 billion, is inherently not superior to Skydance’s proposal. The David Ellison-run Skydance plans to invest $8 billion and fully merge the two companies, bringing animation, film and TV production and other assets to the newly combined entity. Bronfman, meanwhile, would acquire National Amusements Inc., which has a controlling stake in Paramount, and then take a minority interest in Paramount Global. That structure, Skydance believes, offers little opportunity for cost savings or efficiencies, making it an inferior scenario.
The Wall Street Journal had the first report on the legal salvo. Multiple sources familiar with the merger discussions confirmed details of the communiqué to Deadline.
Reps for the special committee and Skydance did not immediately return calls for comment. A rep for Bronfman declined to comment.
“While Skydance is not currently exercising its right to terminate the Transaction Agreement, we reserve the right to do so in the future,” Skydance’s attorneys wrote.
Bronfman’s offer “is significantly less favorable to the Paramount stockholders from a financial point of view,” the letter continued, noting that Bronfman is offering a much smaller buyout of non-voting, Class B shares. Since the merger discussions first began late last year, the ultimate result of a deal for Class B shareholders has been a major point of contention, with the threat of shareholder lawsuits forcing multiple revisions of Skydance’s bid. Having apparently quelled most of those legal threats as spring turned to summer, the company has now opened up a potential new arena of legal conflict.
From Deadline:
Paramount Merger Saga Continues: Go-Shop Period Extended As Edgar Bronfman Vies With Skydance, Boosts His Offer To $6B
Paramount is taking more time before an official handshake with Skydance, using an extra 15 days allotted in their merger contract to explore another bid – a surprise, last-minute offer from Edgar Bronfman Jr., one that the heir to the Seagram liquor fortune has just sweetened.
The special committee of Paramount’s board, which has been overseeing the sale process, acknowledged in a statement that it has Bronfman’s proposal in hand, and extended the go-shop period — for Bronfman only — through Sept. 5. It will expire at 11:59 pm ET tonight for any other potential bidders.
“There can be no assurance this process will result in a Superior Proposal. The Company does not intend to disclose further developments unless and until it determines such disclosure is appropriate or is otherwise required,” the committee said.
The committee had apparently tried to drum up a bit more interest, saying that during the go-shop period, “representatives of the Special Committee contacted more than 50 third parties to determine whether they had an interest in making a proposal to acquire Paramount.”
Bronfman originally submitted a bid worth $4.3 billion on Monday night. The updated version includes $1.7 billion to cash out some of Paramount’s shareholders.
Bronfman’s bid includes the $400 million kill fee which Skydance stipulated should Paramount opt to go with another suitor.
The decision to extend came just hours before the midnight deadline. Par’s special board committee, which has met several times today, will now be taking a very close look at the bid from the heir to the Seagram liquor fortune and former media executive.
Bronfman assembled about 20 investors, from funds to high net worth individuals and financiers for a $4.3 billion package. Former child actor turned crypto magnate Brock Pierce and Kazakh businessman Nurali Aliyev, who were in the initial consortium, are no longer part of the group.
Charles Phillips, the head of Paramount’s special board committee tasked with evaluating offers, is said to have nudged Bronfman’s bid along. It’s the latest frustration for Skydance, whose circa $8 billion merger agreement with Paramount unveiled July 7 included a 15-day extension to explore a rival bid, and another 15 days to nail it down.
If it gets that far, Skydance would have the right to counter. However, the two deals are structurally very different.
Both Skydance and Bronfman agreed to pay Shari Redstone $2.4 billion for her controlling stake in Paramount through special Class A voting shares. Both parties also plan to inject $1.5 billion to help Par shore up its finances and pay down debt. If Bronfman somehow emerges the winner, he’d owe Skydance a $400 million breakup fee.
A big difference is that David Ellison’s Skydance plans to spend $4.5 billion to buy out the few Class A holders besides Redstone, and about half of the much more numerous Class B shares at, respectively, $23 and $15 a share. That’s a premium to the current share price and stockholders like it.
Bronfman has now also added funds to cash-out Class A stockholders at $24 a share and a smaller number of of Class Bs at $16. Interestingly, Deadline hears that he made it clear in his revised offer that he prefers that the additional $1.7 billion to go to shareholders, he is leaving the specifics of how it is spent up to Paramount’s discretion.
A big structural element in Skydance-Paramount is an actual merger — Par buying Skydance in a $4.75 billion all-stock deal. Shareholders don’t love that, calling it a very high valuation for Skydance, and one that that will dilute their holdings.
However, at the end of the day, they acknowledge, Paramount will be a new, bigger company with deeper content and tech chops backed by Oracle co-founder Larry Ellison, one of the world’s richest men. Gerry Cardinale’s RedBird Capital is a major investor as well. Jeff Shell would run the combined company under Ellison.
Wall Street has been a bit mystified by what feels like an uphill fight for Bronfman.
“This is a narrative runs counter to wanting to leave Paramount in the safe hands of a family that has the balance sheet to nurture and properly invest in Paramount’s assets for decades to come,” said Rich Greenfield of Lightshed Partners.
Messy Merger Process
Redstone first began mulling various M&A options late in 2023, as the exigencies of funding a major streaming operation while also managing a portfolio filled with challenged TV and film assets became fully apparent. Paramount stock also had sunk to less than one-third of its value as of December 2019, which is when the merger of Viacom and CBS closed, creating Paramount Global.
The process of landing on a buyer has traveled a winding road in the nine months or so from the time the first serious discussions were held. A number of major players, from Warner Bros. Discovery’s David Zaslav to Barry Diller to private equity giant Apollo Global Management and Sony Pictures Entertainment, joined the chase. After Skydance and Paramount announced their proposed combination in July, most suitors dropped their pursuits.
The dual-class structure of Paramount, along with the fact that Redstone has controlled nearly 80% of Class A shares but just 10% of the company’s total equity, created headaches for dealmakers. Skydance revised its offer multiple times and was poised to announce an agreement with Paramount in June, only to have Redstone withdraw at the 11th hour.
Along the road to a new corporate configuration, running the company has also proven to be a more complex undertaking. Bob Bakish, a onetime favorite of Redstone who was appointed CEO of Viacom in 2015 and then led Paramount starting in 2019, fell out with her over his concerns about the Skydance deal and was ousted last April. An “Office of the CEO” consisting of veteran execs George Cheeks, Chris McCarthy and Brian Robbins, was put in place. The trio then announced dramatic cutbacks, including $500 million in annual cost reductions and the layoff of 15% of the company’s U.S. workforce.
In addition to the belt-tightening, Paramount also acknowledged a fundamental shift in the media empire it had assembled over decades, from the time when Shari’s father, Sumner Redstone, was running the company. It booked a $6 billion write down on its cable networks, acknowledging the wages of cord-cutting and changes in viewer habit. Flagship streaming service Paramount+, meanwhile, showed a profit in the most recent quarter, with full-year profitability the goal by 2025. The outlet also shed 2.8 million subscribers in the quarter, however, due to the end of a “hard-bundle” deal in South Korea, illustrating the challenge of building a global direct-to-consumer service capable of competing against Netflix.
The co-CEOs told Wall Street analysts on the quarterly earnings call that it was “business as usual” despite the merger saga unfolding on the top level. They have said they will be given the latitude to pursue strategic transactions during this interim period. Especially on the international front, McCarthy said on the quarterly call that the leadership would take a “thoughtful approach.” Options, he said, include “strategic partnerships with maybe platforms who already have a great tremendous amount of reach and a platform, in which case we’ll be reducing our cost by not having to have our own platform.”
Another scenario could be “a joint venture with one or more SVOD players, in which case we could get greater scale, increase long-term value, and drive greater profits.” The company is already a partner with NBCUniversal in Sky Showtime, a JV operating in more than a dozen territories across Europe.
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From Variety:
Skydance Accuses Paramount of Violating Deal Agreement by Negotiating With Edgar Bronfman Jr.: Report
In the latest twist in the Paramount Global M&A saga, Skydance Media is alleging the media company breached the terms of their merger agreement by engaging with a rival $6 billion bid from investors led by billionaire Edgar Bronfman Jr.
Lawyers for David Ellison’s Skydance sent a letter Thursday to the special committee established by Paramount to evaluate M&A offers, accusing the committee of breaking the terms of their deal by extending the negotiating window to consider Bronfman’s proffer — and threatening to withdraw its own $8 billion-plus proposal, the Wall Street Journal reported. Skydance’s legal team demanded that Paramount end its negotiations with the Bronfman group.
“Paramount has committed an incurable, material breach of the Transaction Agreement,” Skydance’s letter to the Paramount special committee said, according to the report. Per the Journal, the letter also said, “While Skydance is not currently exercising its right to terminate the Transaction Agreement, we reserve the right to do so in the future.”
On Wednesday, the Bronfman-led investor group submitted a $6 billion bid — hiked from its initial $4.3 billion offer — to acquire Shari Redstone’s National Amusements Inc. and also buy a minority share of Paramount Global’s stock from nonvoting shareholders. In response, the Paramount board’s special committee extended the go-shop period for considering bids that credibly rival Skydance’s offer by 15 days, until Sept. 5.
On July 7, after months of on-again-off-again talks, Skydance and financial partner RedBird Capital Partners together with NAI and Paramount Global announced a binding agreement that would see Skydance buy the shares of NAI (which owns 77% of the voting power in Paramount Global) and then merge with Paramount. Under the terms of the deal, Paramount would be required to pay a $400 million breakup fee to Skydance-RedBird if the media company opts to proceed with a “superior” offer; the Bronfman consortium’s bid includes $400 million to pay for that.
Per the agreement reached by Skydance-RedBird, NAI and Paramount, the special committee of Paramount’s board of directors had a 45-day go-shop period (through Aug. 21) during which it was permitted to “actively solicit and evaluate alternative acquisition proposals.” If Paramount engaged in talks with a prospective bidder that the board’s special committee determined “in good faith is or would reasonably be expected to lead to a Superior Proposal,” the company had the right to extend the go-shop period until Sept. 5, 2024.
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Originally published: August 23, 2024.
H/T: Special thanks to @916786wc for the news!
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