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Paramount's $5 Billion Merger Dilemma: Shareholders at a Crossroads
Shari Redstone, Photographer: Martina Albertazzi/Bloomberg
In a move that could potentially reshape the landscape of the television and film industry, Paramount Global's predominant stakeholder, Shari Redstone, sits at a crossroads faced with a critical decision. As Redstone deliberates on a possible sale of her family's shares to renowned producer David Ellison, the possibility of merging the entertainment titan Paramount with Ellison's own burgeoning company, Skydance Media, draws near.
Paramount, a juggernaut encompassing CBS, MTV, and a suite of other media enterprises, finds its fate tightly clutched in the hands of the Redstone family. The Redstones, despite holding less than 10% of the company’s actual stock, wield disproportionate influence through their control of 77% of the voting power within the company. Under the current structure, the Redstones are not mandated to seek the endorsement of their fellow shareholders for a potential transaction. Nevertheless, an adherence to securities law that suggests welcoming widespread shareholder input could skirt the potential of expensive legal lawsuits from disgruntled investors.
"We think it should," urged William Riley, a lawyer for one of Paramount's investors, Russell Weiner, who's also the mind behind the Rockstar energy drink brand. Riley, in his correspondence to Redstone, accentuated concerns over a deal that appeared to be maneuvered for personal gains rather than collective benefit, leaving shareholders in a feared speculative bind not bargained for upon their initial investment.
In the corporate-friendly state of Delaware, where Paramount holds incorporation, the highest court recently made a precedent-setting ruling. They determined that transactions which favor a controlling shareholder disproportionately should be contingent upon both an affirmative nod from a special committee of independent directors, and also the majority vote from the lesser, noncontrolling shareholders. Without these checks in place, directors face an uphill battle in validating the fairness of such deals in the face of inevitable legal challenges.
"A more lenient standard of judicial review could be assured if minority stockholders are afforded the opportunity to vote," expounded Lawrence Hamermesh, a renowned authority on Delaware law and former executive director of the Institute for Law & Economics at the University of Pennsylvania.
Even though the Redstones, alongside Paramount's board, have yet to publicly commit to the transaction, the speculated terms of the deal are being mulled over. According to those privy to the discussions, Ellison and his affiliates might acquire the Redstone family's stakes for an estimated $2 billion. Subsequently, this would set the stage for a merger that values Skydance at a considerable sum of around $5 billion.
The murmurs of this potential merger have stirred unrest among several stakeholders at Paramount. Notably, billionaire financier Mario Gabelli and the investment group Barington Capital Group LP have been vocal, advocating for alternatives that would be more equitable to all shareholders and not disproportionately favor the Redstone family. Concurrently, heavyweight corporations such as Sony Group Corp and Apollo Global Management Inc. are also under consideration with whispers of a possible joint bid for Paramount circulating.
As things stand, the Redstones, along with the company's board, remain undecided on whether to extend a voice to the nonvoting shareholders, sources reported. The family’s spokesperson opted against commenting. This brings into focus the distinct nature of Paramount's stock structure. A significant portion of the company's equity is in the hands of investors who – contrary to most public corporations – remain silent on pivotal decisions, including selections for board membership.
The past offers glimpses of powerful media figures empowering shareholders with limited voting rights during pivotal transactions. Notably, News Corp. and Fox Corp., both media empires under the Murdoch banner, have bylaws that necessitate consultative votes from nonvoting shareholders for significant mergers. Rupert Murdoch, the overseer of both entities, once announced his intent to unify the companies yet declared his commitment to not proceeding without the backing of a majority of investors outside his Murdoch lineage. Although these merger plans were eventually dropped, Murdoch's gesture served as a noteworthy example.
Adding to the historical context, Cablevision Systems saw a dramatic turn of events in 2007 when its independent shareholders boldly rejected a proposed acquisition by the controlling Dolan family, a decision allowed through voting provisions that specifically excluded family members.
However, not all corporate tales echo such inclusivity. When CBS Corp. and Viacom Inc. were brought together again in 2019, the Redstones did not extend the same courtesy to nonvoting investors, sidelining them from the decision-making process. CBS board members even escalated the matter to the courts in an attempt to halt the merger, but to no avail. Consequently, Paramount faced legal action, resulting in a substantial $290 million settlement.
Considering the looming likelihood of a deal with Skydance, it becomes increasingly plausible that Paramount will confront a legal quagmire, forecasts Charles Elson, a seasoned corporate governance scholar from the University of Delaware. Elson's critique underscores the problematic dynamics of dual-class stock structures. This approach originally aimed to empower visionary leaders, but as those visionaries pass on, leaving their progeny in charge, it can often result in marginalized minority shareholders.
As the situation unfolds, both privately and in the public eye, Paramount Global, under the influence of Shari Redstone and the rest of the Redstone family, grapples with a decision that may redefine their corporate legacy and the entertainment industry at large. While the allure of a potentially lucrative deal beckons, the call for equitable treatment of all shareholders echoes just as strongly.
The potential integration of Skydance Media into Paramount's vast empire portends a bold new chapter for the media conglomerate. With strategic mergers often proving to be transformative, the question remains: will Paramount’s move serve as a catalyst for monumental success or a source of strife among shareholders fighting for their rightful voice?
As details emerge and speculations abound, the industry watches closely to see how this game of corporate chess plays out. Whether Redstone will heed the calls for shareholder democracy or chart a path of unilateral decision-making may well set a precedence for similar scenarios in the corporate tapestry of America.
As judicial, investor, and corporate interests converge at this pivotal juncture for Paramount, the choices made in the days ahead may well be remembered as a watershed moment in corporate governance.
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