Shares of Paramount Global are softer Tuesday after Edgar Bronfman Jr. exited the Paramount fray last night and shareholders hoping for a bidding war with Skydance were disappointed.
“It was a long shot to begin with,” said one investor of Bronfman’s offer. “But you always want a competitive process with the hope that one or both sides will sweeten their bid. That didn’t happen.” The stock is down 6.4% at $10.60.
At the end of the day, time ran out, said a person familiar with situation of the former media executive and heir to the Seagram liquor fortune and the investor consortium he assembled. The financing depended heavily on high-net-worth individuals as private equity and institutional investors were slow to step in. Layers of documentation to show a reasonable probability of success were required well before September 5, the point where Par could have extended the conversation for another 15 days. Deadline hears the Bronfman camp continued trying to coral backers through yesterday but in the end didn’t have what it needed in time.
There’s also the question of whether Bronfman’s offer, worth $6 billion, was somehow better than the Skydance agreement, worth $8 billion, although they weren’t apples to apples. Lawyers for the David Ellison company slammed the special committee of the Paramount board over that in a letter alleging breach of their agreement since the 45-day “go shop” period only allowed Par to consider “superior” offers.
Investors have been banging Par stock up, down and sideways since late last year on merger speculation, offers and counter offers in this long, highly public saga that saw Skydance and Paramount finally announce a deal in July after many months of negotiations. That agreement included the 45-day window that Par could extend by 15 days to explore any other better offers. Bronfman’s was the only offer to emerge.
Bronfman’s team submitted a bid early last week, a few days ahead of the go-shop expiration. It sweetened the offer just before the deadline and the committee agreed to an extension to engage. Bronfman then withdrew last night, congratulating Skydance.
Regulators will now take a look at the Paramount-Skydance merger, expected to close by the middle of next year.
Skydance’s David Ellison and backers Larry Ellison and RedBird Capital agreed to acquire Shari Redstone’s family holding that controls Paramount for $2.4 billion; to inject $1.5 billion into Par’s balance sheet; and to spend $4.5 billion to buy all of Par’s other voting Class A voting shares and half of the many more non-voting Class B shares at a premium.
Paramount will then acquire Skydance for $4.75 billion worth of newly issued Paramount Class B stock. That merger will dilute the holdings of other investors, who have been grumbling about it since the deal came to light.
Bronfman and his group offered the same $2.4 billion to Redstone and the same $1.5 billion for Paramount’s balance sheet, along with another $1.7 billion to buy out stockholders, and a contractually required $400 million breakup fee to Skydance.
There was no merger in his deal.
However, strategically, big picture, given the ongoing and thorny complexities of the media business right now, the merger is the point of the Skydance deal. The creation of a deeper, more diverse content company with backers like the Oracle co-founder and RedBird makes business sense.
This deal is not two major studios combining, like Sony’s bid. It is not private equity selling off the historic lot for a real estate play, like Apollo might have. Hollywood naturally hates both of those. Skydance wants to cut a hefty $2 billion in costs, but considerably less than the $3 billion in savings anticipated by Bronfman.
The Redstone piece of a deal has been controversial. Some big investors like Mario Gabelli are still dying to know how much she is getting per share for National Amusements’ Paramount stake versus what other shareholders are getting ($15 for the Bs and $23 for the As). Gabelli, the biggest non-Redstone holder of Paramount Class A shares, has lodged a request for internal Par-Skydance deal documents in Delaware Chancery Court, although he has not started litigation. As per below. he also wants to know what Bronfman offered Redstone.
“Bronfman’s offer had pluses and minuses,” said one investor acknowledging that a merged Paramount and Skydance would probably be stronger together and that Par can “now focus on running the business for the benefit of those who will continue to be shareholders.”
Par’s special committee came to that conclusion as well.
“Having thoroughly explored actionable opportunities for Paramount over nearly eight months, our Special Committee continues to believe that the transaction we have agreed with Skydance delivers immediate value and the potential for continued participation in value creation in a rapidly evolving industry landscape,” said committee head Charles E. Phillips Jr. last night.