Paramount Global shareholder Mario Gabelli has filed a formal complaint in the Delaware Court of Chancery to compel the media giant to comply with his books and records request related to its pending $8 billion merger with Skydance Media.
Under a Section 220 demand, Gabelli’s Value 25 Fund asked Paramount back in July 2024 to allow it to inspect its books and records to investigate “potential fiduciary and/or federal securities violations” against the media giant’s minority shareholders in connection with the deal. Gabelli is seeking more information about how much Paramount’s controlling shareholder Shari Redstone will receive for her Class A shares.
In the more than five months since the initial request, Gabelli said Paramount has produced a total of 168 documents, consisting of “mainly sanitized board and committee minutes, transaction documents and board questionnaires.”
“Despite multiple follow-up requests and meet-and-confer sessions, the company has refused to produce electronic documents (including communications) critical to efforts by plaintiff, its analysts and its counsel to investigate whether one or more board members, controlling shareholder NAI or Skydance breached fiduciary duties (or aided and abetted such breaches) by negotiating, promoting or accepting a merger wherein NAI and its chairwoman, president and CEO Shari Redstone (who is also non-executive chairwoman of Paramount), will receive significantly greater merger compensation from Skydance for NAI’s controlling stake in Paramount versus the compensation being paid to minority shareholders,” the complaint stated.
Gabelli added that there is “credible basis to believe that NAI, members of the board and possibly senior officers of Paramount may have breached their fiduciary duties to the company as NAI apparently has orchestrated a transaction to benefit itself.”
Under the terms of the Skydance deal, new Paramount will have an enterprise value of $28 billion, while Skydance is being valued at $4.75 billion. National Amusements will receive $2.4 billion, including $1.75 billion for the equity and the assumption of $650 million in debt, while non-NAI shareholders will receive $4.5 billion. Meanwhile, $1.5 billion in new capital will be used to pay down Paramount’s $14.6 billion in longterm debt and recapitalize its balance sheet.
Class A shareholders can elect to receive $23 cash per share or 1.5333 shares of Class B stock of new Paramount. Class B shareholders can elect to receive $15 per share or one share of Class B stock of new Paramount, which is subject to proration if those elections exceed $4.3 billion in aggregate.
Paramount’s existing public shareholders that elect to receive Class B non-voting shares in lieu of cash will hold approximately 28.3% of the Class B non-voting shares of new Paramount, assuming full participation in the cash election by Class B stockholders. If shares are elected over cash, reducing the cash required to under $4.3 billion, the $1.5 billion of cash going to Paramount’s balance sheet could grow up to a cap of $3 billion.
“In substance, Skydance plans to circumvent Paramount’s public
stockholders by purchasing Paramount’s controlling stockholder’s stake for an
enormous premium and dilute existing Paramount stockholders by forcing
Paramount to acquire Skydance and NAI,” lawyers for Gabelli wrote.
At the current deal price, Gabelli noted that half of the $2.4 billion paid to NAI would be attributable to Paramount stock, while the other half would be attributable primarily to Paramount’s movie theaters.
“Although Paramount and NAI have offered no transparency into the valuation of
NAI, it appears that the transaction is substantially overvaluing the theatres, and that, in reality, NAI is therefore receiving significantly more for its Paramount stock than is being offered to the non-NAI shareholders,” the lawyers added. “Critically, the Skydance deal appears to provide NAI more than the steep 50% markup that its financial advisor targeted in 2018 and it explicitly sought earlier this year when it began to market NAI.”
He added that Redstone will receive $180 million, comprised of $70 million in severance and a $110 million pension payment, and that Skydance and its investors will cover the remainder of the lease for her private jet and expenses for her New York City apartment for the next few years. In addition, Gabelli said Redstone and other NAI shareholders, directors and officers will receive litigation indemnification capped at a maximum of $200 million.
Gabelli and his funds beneficially own 4,768,277 Class A shares, representing an 11.71% stake in the media giant — making him the second largest Class A shareholder behind Redstone.
They also own 1,113,319 shares of Paramount Class B shares worth an aggregate of more than $127.4 million based on the merger consideration in the Skydance deal.
In addition to the complaint, Gabelli asked the Federal Communications Commission in November to pause its review of the transfer of broadcast licenses in connection with the transaction as his firm conducts its investigation.
A spokesperson for Paramount declined to comment on the complaint.
In addition to Gabelli, the Skydance deal has faced additional objections from the Center for American Rights, LiveVideoAi.Corp and Fuse Media, which Skydance has asked the FCC to dismiss.
Incoming FCC chairman Brendan Carr recently told Fox News that CAR’s “news distortion” complaint against CBS’ “60 Minutes” is “something that is likely to arise in the context” of the agency’s review of the Skydance transaction.
The Skydance deal is on track to close in the first half of 2025. If the consummation of the transaction does not occur before April 7, subject to two automatic 90-day extensions, or if a regulator blocks the merger, both Paramount and Skydance can terminate the deal, per the S4. Exercising that option would leave Paramount on the hook to pay Skydance a $400 million breakup fee.
