Just as Skydance Media and RedBird Capital Partners are nearing completion of Larry Ellison’s takeover of Paramount Global this spring, a group of investors who previously made bids on the legendary media company are making a last-minute counteroffer worth approximately $13.5 billion.
As a movie enthusiast, I find myself privy to a fascinating development: Project Rise Partners have drafted a letter to be delivered to Paramount’s board on January 24th, outlining a fresh proposal that surpasses the all-cash offer extended by the consortium during the ‘go-shop’ window. This group claims their terms are significantly superior to the $8 billion deal proposed by Skydance and RedBird.
Baker & Hostetler’s letter indicates that due to the unfavorable market response to the Skydance transaction, PRP is enhancing its proposal as follows: The B shares will be purchased at $19 per share, compared to $15 per share in the Skydance offer – this represents a 75% premium and is 27% higher than the offer from Skydance. The offer for the A shares by PRP remains unchanged as it was in the Skydance offer. PRP will contribute an additional $2 billion to the company’s assets. This proposal is entirely cash-based, with financing secured from reputable investors.
Most investors connected with CineMoi’s film and lifestyle TV network, led by Daphna Edwards Ziman as president and co-chairman, and Moses Gross, CEO of ANM Group, have kept a low profile. However, it is rumored that Project Rise Partners, another key investor, boasts heavyweights similar to Larry Ellison in the industry, with at least one of the world’s wealthiest individuals involved, as well as a partner who is an innovator in the satellite sector. Ziman and Gross claim they were the ones who made the initial proposal, but it was never presented to the board.
Neither Skydance nor Paramount Global chose to offer a response when asked for comment. Similarly, a representative from the special committee at Paramount’s board, who are responsible for evaluating offers, has yet to get back to us regarding our request for comment.
In most cases, a publicly-listed corporation is obligated by law to take into account any reasonable and valuable proposition that could potentially benefit its shareholders. In October 2024, Project Rise Investors sent a legal notice asserting that Paramount’s special committee breached their duty towards shareholders by failing to review an earlier $8.5 billion bid from the group for the company. The new proposal from Project Rise Partners is worth $13.5 billion, with $5 billion earmarked for debt restructuring.
As per a Securities and Exchange Commission (SEC) document, someone from Paramount’s Special Committee had a conversation with a representative from Project Rise Partners on August 15th. This chat took place during the period when negotiations were allowed (known as the “go-shop window”), which ended on August 21st. However, according to the SEC filing, no terms were discussed during this call, and it was only on August 26th, after the go-shop window had closed, that a proposal for acquisition was formally submitted by Project Rise Partners.
The Baker & Hostetler letter, sent to Shari Redstone, Barbara Byrne, Linda Griego, Judith McHale, and Susan Schuman (all members of Paramount’s board), outlines that with the PRP proposal, Class B shareholders would own half (50%) of the company’s equity, compared to just 30% with Skydance’s offer. The PRP offer guarantees an independent board and standard corporate governance practices. Additionally, unlike the plan proposed by Skydance, the committees that are currently in place would be preserved under the PRP proposal. Moreover, for the first time in the company’s history, Class B shareholders would have a say in the decision-making process.
Project Rise Partners asserts they aim to expand the workforce at Paramount Global, while partners from Skydance and RedBird hint that layoffs might occur if Skydance were to merge with Paramount, suggesting potential reductions in staffing.
Larry Ellison, one of the world’s wealthiest individuals, is encountering regulatory challenges with the proposed merger between Paramount and Skydance, a move that would place his son, David Ellison (Skydance CEO), in charge of the combined media resources. Recently, Donald Trump’s appointee to the FCC, Brendan Carr, has openly expressed concerns about this merger. Notably, Larry Ellion, the founder of Oracle with a net worth exceeding $200 billion and a longtime supporter of President Trump, visited the White House on Tuesday to discuss an unrelated AI Stargate agreement. This meeting was viewed by some as an attempt to ensure the Paramount-Skydance merger proceeds smoothly. This move led Elon Musk to tease Ellison on X, stating: “They don’t actually have the money” and suggesting they have “less than $10B secured.” Meanwhile, Trump has expressed willingness for Larry Ellison or Elon Musk to acquire TikTok.
The proposed merger of Skydance with Paramount, valued at $8 billion, has sparked debate among shareholders due to Skydance being estimated to be worth around $4 billion. A recent proposal from Project Rise Partners calls this valuation into question. According to a letter dated January 24th, Skydance reported an EBITDA of $25 million in 2023, yet was purchased by Paramount for $4.75 billion – approximately 200 times its trailing earnings. This valuation, the letter argues, lacks justification in market benchmarks and no independent buyer would pay such a high price.
At the same time, representatives such as Rep. John Moolenaar (R-Mich.), who chairs the House China Select Committee, are expressing worries regarding China’s involvement in the Skydance deal. This is due to the fact that Tencent, a company connected to the Chinese military, will possess a minor share in the media conglomerate, which encompasses entities like CBS News and Paramount film and TV studio.
In essence, the letter from Project Rise Partners states that the eagerness to finalize a deal with Skydance seemed overwhelming, yet it appears no one took adequate notice of Skydance’s foreign ownership. The Pentagon has added Tencent, a similar company, to a list of firms suspected of assisting the Chinese military. This raises concerns about regulatory scrutiny due to heightened worries over Chinese control of consumer platforms and potential access to personal data. If the Board and their advisors failed to notice or disregard such a significant warning sign, shareholders may question the thoroughness of the Board’s investigative process. This inefficiency might be the reason behind the seemingly inflated price paid for Skydance, the company purchasing Paramount.
Essentially, National Amusements Inc., owned by both Paramount and Redstone, have a firm agreement with Skydance Media. Under this deal, they can only withdraw if regulatory bodies block the merger. A source close to the situation asserts that such an occurrence is extremely rare. However, a letter from Baker & Hostetler suggests that the Paramount board had previously eliminated the possibility of considering better offers during their sale process.
In the context of public companies, it’s common for merger agreements to include a standard clause known as a fiduciary out. This allows a new potential buyer with a superior offer to pay a breakup fee to the initial bidder, covering costs associated with the opportunity and other factors. However, in this particular case, it appears that the Board or their legal advisors intentionally left out such a clause. This omission is detrimental to B shareholders and beneficial to Skydance.
Fiduciary outs serve an important purpose: they allow boards to terminate a transaction agreement if a superior offer arrives before the deal is approved by shareholders and finalized. If the agreement lacks such a provision, the Board’s decision could be seen as both binding and coercive. In other words, it would seem that the Board is forcing the deal through without giving shareholders an opportunity to consider a better offer.
It’s unclear why this unnecessary one-way transfer of value to Skydance would be necessary. These ‘deal protection devices’ are not designed to protect shareholders; rather, they are meant to safeguard the interests of all parties involved in a merger or acquisition.
The letter additionally underscores the responsibility of Paramount directors towards shareholders, rather than advisors or Skydance.
Due to the Board’s choice to remove the fiduciary responsibility from the equation, a significant $400M breakup fee favors Skydance if a regulatory obstacle arises but does not advantage B shareholders if a superior proposal emerges. After extensively exploring the market for more than nine months, the Board determined that Skydance was the only viable, fully funded offer on the table. The letter further alleges that the Paramount Directors violated their duty of loyalty by constructing a merger agreement that primarily benefited the buyer rather than the seller in this deal.
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2025-01-24 22:49