Paramount, Shari Redstone face investor angst over possible Skydance deal

Shares of Paramount Global tumbled Wednesday as several of the company’s directors are stepping down as merger talks continue between the historic studio and tech scion David Ellison.

It’s the latest sign of unease at the media company amid negotiations between Ellison and Paramount’s controlling shareholder, Shari Redstone, which would lead to the combination of Ellison’s Santa Monica-based film and TV production company Skydance with the storied entertainment giant.

Some shareholders have expressed concerns too. They worry that the structure of the deal would confer significant benefits to Redstone, who is Paramount’s nonexecutive chairwoman, at the expense of regular investors.

Earlier in the week, shareholder Blackwood Capital Management sent a letter to Paramount’s board of directors, saying they “vehemently object� to the proposed Skydance deal.

“Under the terms reported by the media, you’ll be cashing out one shareholder at a huge premium and leaving the rest of us stuck with heavily diluted shares in a very speculative new venture,� Justin Evans of Blackwood, wrote. “This violates the law as well as your fiduciary duty to shareholders. Further, the proposal includes material conflicts of interest and painfully obvious self-dealing.�

The letter also included a warning: “If you move forward with this toxic unfair proposal, the next letter you’ll receive is a litigation hold notice from our attorneys.�

Paramount shares fell 47 cents, or 4.3%, to $10.50 on Wednesday. The stock had fallen as much as 7% in midday trading.

Earlier in the day, the Wall Street Journal first reported that Dawn Ostroff, Nicole Seligman and Rob Klieger would be stepping down from their roles on the board in the coming weeks.

The three are among the directors closest to Redstone; Ostroff and Seligman have been longtime friends with Redstone, and Klieger was late patriarch Sumner Redstone’s attorney, picked for the board by Shari Redstone. Frederick O. Terrell is also exiting the board, the outlet later reported.

Rising concerns among investors put the spotlight on the independent committee, which included Redstone’s allies. There were concerns about a potential conflict of interest as directors have a fiduciary duty to all shareholders, according to a person who had been briefed on the tensions but was not authorized to comment.

The stock has fallen 15% in the last five days, wiping out gains made last week amid escalating deal chatter.

Paramount declined to comment.

The stock slump comes as investors express dismay at reports of the potential deal between Skydance and National Amusements — the Redstone family’s holding company and controlling shareholder of Paramount. The two sides are in a period of exclusive negotiations, according to people familiar with the matter who are not permitted to comment.

Such a deal would give Ellison control over Paramount, marking the start of an uncertain new chapter for a company that has gone through major upheaval in recent years as the entertainment industry transitions from traditional television to streaming.

In a Monday letter to Paramount’s board, investor Matrix Asset Advisors wrote that the in-the-works deal between NAI and Skydance would be “detrimental� to Paramount’s value.

The investment firm urged the board not to accept a “sub-optimal� offer from Skydance, and instead more seriously consider a competing $26-billion bid from private equity giant Apollo Management Group.

Blackwood Capital Management, too, urged the board to explore Apollo’s offer, writing, “The last thing the company shareholders need is yet another silver-spooned movie enthusiast to run our entertainment company into the ground.�

Ellison first expressed interest in a deal for Paramount in December. Shari Redstone had long viewed him as a preferred buyer because of Ellison’s long association with the film studio, his respect for what’s been built and the fact that Ellison is from a younger generation, according to a person close to the sales process but not authorized to comment publicly. Ellison’s father, Oracle Corp. co-founder Larry Ellison, is also expected to contribute funding to the deal.

Skydance has an existing relationship with Paramount, co-producing each film in the “Mission: Impossible� franchise since 2011’s “Mission: Impossible — Ghost Protocol,� along with the 2022 hit “Top Gun: Maverick.�

The two studios’ prior collaborations, as well as the allure of combining their intellectual properties and the cachet of owning the longest-operating Hollywood studio, probably was attractive to Ellison, analysts said. Paramount’s rich history of films includes such cinematic hits as “The Godfather� and “Chinatown,� as well as blockbuster franchises such as “Transformers,� in addition to groundbreaking cable channels including BET, MTV and Nickelodeon.

But Paramount today faces significant challenges, including the decline of linear TV, which has shrunk valuable ad revenue, the company’s struggles with its streaming service Paramount+ and a larger, industrywide question about when — if ever — box office revenue will return to pre-pandemic levels.

“Paramount still is a historic studio with a legendary venue; I can’t imagine that would change,� said Stephen Galloway, dean of Chapman University’s Dodge College of Film and Media Arts.

But he noted how many of Paramount’s historical rivals have been bought up by other studios — MGM by Amazon, Fox by Disney and Warner Bros. combining with Discovery.

“Recent history doesn’t bode well for the future of these brands that basically all came about in the ‘20s ... and lasted 100 years. A hundred years is a long time. Nothing lasts forever,� Galloway said.

Ellison is not the only interested buyer. Apollo’s bid for the company is seen as more attractive to some analysts and shareholders. The Ellison bid heavily favors Redstone and her controlling class of shares and would dilute the value of shares for the vast majority of stockholders, they say.

“The notion of National Amusements getting a premium for their voting stock is totally warranted,� said Mario Gabelli, chief executive of GAMCO Investors Inc., whose clients own 5 million shares in Paramount. “The question is how much. My clients want to be treated the same as the voting stock. All voting stock should be treated equally.�

Redstone is said to have recused herself from the deal-vetting process.

Warner Bros. Discovery also previously expressed some interest in a merger, though it has struggled under the load of its debt from previous deals and is in similar straits as Paramount. Warner Bros. Discovery’s interest, though, was short-lived. Media mogul Byron Allen also made a bid for the company, though his financing seemed more uncertain.