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As Paramount Shareholders Slam A Skydance Deal, Directors Said To Be Exiting Board: Could Threat Of Legal Action Derail Talks?

The temperature is rising as Paramount Global’s common shareholders continue to publicly and privately bash a possible acquisition by David Ellison’s Skydance Media with terms they insist would mainly benefit Shari Redstone, and theatening legal action. With the parties in the midst of a 30-day exclusive negotiating period, a report this week said four Par directors are planning to step down from the board.

Paramount declined to comment on WSJ news that directors Nicole Seligman, Dawn Ostroff, Frederick Terrell and Rob Klieger are set to exit. Shareholders elect directors at annual meeting, usually held in the spring. Proxy statements filed ahead with the SEC — Paramount’s is not out yet — list the company’s slate of nominated directors and set the meeting date.

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Klieger is Redstone’s attorney. Seligman, Ostroff and Terrell are are said to be on a special board committee Paramount created to evaluate a Skydance deal and make sure it’s fair to all shareholders. Privately and publicly, many insist that what’s leaked out so far is definitely not fair and promise litigation.

“We are not surprised, but cannot think of a stronger statement against the proposed Skydance deal,” said Loop Capital analyst Alan Gould of the board situation in a note today.

Paramount Global has a dual stock structure with the Redstone family holding NAI owning 77% of the voting stock, with only 10% of the actual equity. The lesser B shares are held by a wide range of institutions that are strenuously objecting to reported terms with Skydance, starting with a $2 billion payment to NAI for its controlling stake. Common shareholders would not get a buyout premium.

NAI has just over $1 billion worth of Class A and Class B shares, a movie theater chain worth roughly $360 million, and about $200 million in debt, Gould said.

As deal talk has evolved, Paramount Global’s voting shares are trading at around $23 – up from a 52-week low of $13. The common stock is at about $11, down from a year-high of $24.

The second step would be a merger of Skydance and Paramount — which is the point of the deal, but would not be automatic even with Skydance gaining control. Specifically, Paramount would reportedly buy Skydance for $5 billion in an all-stock deal. Issuing new shares dilutes the stakes of current shareholders, another reason they are unhappy. They say $5 billion is a big valuation for Skydance.

At least three funds have publicly shared angry letters sent to Paramount and its board. According to Blackwood Capital Management, “the only way to avoid litigation is to provide all current shareholders the option to sell their shares at the same price as Ms. Redstone.” Otherwise, “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. This violates the law as well as your fiduciary duty to shareholders.”

At attorney for Aspen Sky Trust shared a missive to Redstone’s attorney threatening legal action if Par’s executive chair did not “immediately cease and-desist from any involvement in the ongoing discussions, negotiations, and evaluations of Skydance Media’s bid to Paramount.”

“Your client’s involvement with the negotiation and determination process associated with Skydance Media’s bid is saturated by conflicts of interests. As a member of the Board of Director’s who holds a unique financial incentive to advance the bid submitted by Skydance Media, your client has the ability and is incentivized to orchestrate a deal with Skydance Media that would be personally beneficial even if it is not in the best interests of the company and its remaining shareholder population.”

Matrix Asset Advisors kicked off the public chorus when David Katz, president and chief investment officer Monday called the firm “distressed by recent reports that the Board is strongly considering a sub-optimal bid from Skydance that prioritizes the interests of one shareholder over the broader shareholder base. As reported, this deal focuses on monetizing Shari Redstone’s shareholding for cash at a significant premium. The vast majority of shareholders would not receive a similar premium and would be forced to finance a speculative investment in Skydance in a transaction significantly dilutive to shareholder value. Overall, this transaction, as contemplated, would be detrimental to the company’s value and contrary to the Board’s fiduciary duty.”

Investors are especially incensed at Paramount’s brush-off of a $26+ billion bid by Apollo Global for the whole company. The board hasn’t engaged with the private equity giant.

“It is especially galling to us, and probably many other similarly situated shareholders, that the Board would not seriously consider the reported $26-27 billion cash offer from Apollo Global, apparently due to concerns about the deal financing. This objection can be cured by giving Apollo the same deference (30 days that is being given to Skydance) to perform diligence and confirm financing. And the valuation certainty of a cash bid is vastly superior to a notional valuation that Skydance is assuming for itself in the second-step transaction, a clear conflict of interest,” said Matrix’ letter.

Redstone, who is said to believe Skydance would be the a better conservator of the entertainment business her father assembled over decades, also faced shareholder litigation over the merger of Viacom and CBS, all of which was settled. Shareholders are again accusing her of skirting legalities — this time for a big payday.

“The easiest time to derail [the Skydance deal] from happening is right now – before they have actually entered into an agreement. Before they have made anything happen,” Katz tells Deadline. “It gives Apollo the ability to step up if they want to be more visible, if they think they can pull this off, and that puts even more pressure on the board.”

“If companies are public, the board has to answer those questions and understand they are under the spotlight. And that’s why you have directors resigning … I think at a minimum they are feeling the pressure that they just can’t rubber stamp things.”

Most of the board is close to Redstone, says another fund invested in Paramount. “It’s Shari’s board, and so anybody defecting is meaningful.”

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