The suit, which was filed in Delaware court by Class B common stockholder Scott Baker, broadly alleges that controlling shareholder Shari Redstone forced through an “unfair” deal that benefits her and Paramount’s parent company National Amusements Inc (NAI) at the expense of Class B shareholders, who had no say in the deal.
The suit argues Redstone was intent on selling her interest in Paramount to Skydance “regardless of its impact on other Paramount shareholders.”
Through a unique ownership structure, the Redstone family’s holding company NAI owns 77% of the voting shares in Paramount, though it only holds a roughly 10% equity stake.
Under the proposed deal, Paramount’s Class B stockholders can cash out their shares at US$15. However, the suit alleges there isn’t enough money in the deal to buy out all of the non-NAI Class B shares. Instead, argues the suit, shareholders would get a mix of cash and Class B stock in the merged entity amounting to only US$12.23 per Class B shares.
The suit also alleges that Paramount’s board is “packed with Redstone insiders, over whom she exercises control,” and that Redstone has a history of controlling company boards and ousting directors in order to bring merger deals to fruition.
On the latter point, it cited the 2019 CBS-Viacom merger as an example of Redstone doing “everything in her power” to force a deal through, “even if it took her a couple of years and required ousting directors, packing boards of both merging companies with directors who would support her, and using NAI’s status as controlling shareholder to get what she wanted.”
In addition to Redstone, Paramount and NAI, the lawsuit also names Paramount board members Barbara Byrne, Linda Griego, Judith McHale, Charles Phillips and Susan Schuman as defendants, in addition to Skydance and its CEO David Ellison.
The filing of the lawsuit comes three weeks after Paramount and Skydance announced they had come to terms on a deal to form New Paramount following a lengthy negotiation process that saw several other bidders in the picture. The companies said they expect the transaction to close in the first half of 2025.
Through the deal, Skydance, which is backed by private equity firms RedBird Capital and KKR, will invest around US$2.4bn to acquire Paramount Global’s parent company, National Amusements, for cash and US$4.5bn for the stock/cash merger consideration to be paid for publicly traded Class A shares and Class B shares. It will also invest US$1.5bn to help improve Paramount’s balance sheet.
Ellison will serve as chairman and CEO of New Paramount, while Jeff Shell, the former NBCUniversal CEO who is currently chairman of sports and media at RedBird Capital, has been named president. Those appointments will become effective when the transaction closes.
The deal also includes a 45-day ‘go shop’ period, which allows Paramount to look for better offers before going with Skydance. However, going with another company would mean Paramount would have to pay Skydance a US$400m “breakup fee.” On Friday, billionaire Barry Diller, who emerged as a potential suitor last month, indicated that his company IAC was likely out of the running.
It had been widely assumed that the Paramount-Skydance deal would draw shareholder scrutiny and lawsuits, and there are expected to be several others filed in the coming months.
