Yahoo Finance Paramount’s ‘Dramatic’ Stock Decline Shows a Lack of Faith in Skydance’s David Ellison, Ariel Investments Founder Says
As Paramount Global and Skydance Media’s exclusive talks about a potential merger continue, Ariel Investments founder and co-CEO John Rogers Jr. told TheWrap that the media conglomerate’s recent stock decline indicates a lack of faith in Skydance’s CEO David Ellison.
Watching the developments closely, the executive said that he could consider legal action in the event that a deal doesn’t appropriately benefit his clients.
The firm, which is a long-term shareholder with a 1.8% stake in Paramount as of the new year, previously told TheWrap Friday that pursuing exclusive talks with Skydance and a deal that would benefit controlling shareholder Shari Redstone at the expense of other shareholders would be “averse” to the company’s fair market value.
On Monday, he added that they are “talking to our outside counsel.”
“It’s something that we’re going to be looking at carefully because we’ve just never seen anything like this,” Rogers Jr. said. “We hate to do that, but you’ve got to do what’s right for your customers and your shareholders and Ariel mutual funds. We have a responsibility to be fighting for our customers.”
In previous conversations with Paramount management and the board, Rogers Jr. noted that they’ve been “very consistent and strong” in their commitment to upholding their fiduciary responsibilities to shareholders. But he and his firm have been puzzled by the recent developments with regard to Skydance’s offer.
“It’s a weird dichotomy when everyone’s telling you they’re doing everything the right way and then the rumors are that they’re coming to a different conclusion, which is from the very obvious that it’s better to take $26 billion from a well-established, deep-pocketed private equity firm that’s got a world class reputation than to rush into the arms of a smaller company that’s never done anything like this before,” he said.
He pointed to the stock’s recent decline as evidence that the market does not view the Skydance transaction favorably.
“The market is telling everyone that no one believes that David Ellison can do something that’s good for all shareholders in that the stock has traded so poorly, it’s gone down dramatically after all the rumors started. It’s highly, highly, highly unusual,” he explained. “Once most M&A talks start, usually the stock price finds some equilibrium between the beginning price and speculated ending price. To have the stock continue to make new lows shows there’s no appetite for this transaction.”
Skydance, which is valued at more than $4 billion, has been a coproducer with Paramount on projects such as the “Mission: Impossible” franchise and “Top Gun: Maverick.”Its deal, which CNBC reported would include raising new equity and an ownership stake of somewhere between 45% to just over 50%, would be financed with the help of a consortium of investors, including private equity firms RedBird Capital Partners and KKR, as well as Larry Ellison, Ellison’s father and Oracle’s cofounder.
The senior Ellison would reportedly put up some of the new funding and potentially provide Paramount with access to artificial intelligence software and other data technology from Oracle. David, meanwhile, would likely lead the new company, while former NBCUniversal CEO Jeff Shell would also have a major leadership role. Additionally, management would reportedly be open to divestitures of assets, such as BET Media Group. Bloomberg separately reported that Skydance would look to merge Paramount+ with a rival, such as Peacock, Max or Prime Video, and would hold onto CBS.
Redstone’s National Amusements could receive over $2 billion in cash from the Skydance deal, according to The Wall Street Journal. Skydance would reportedly be acquired in an all-stock deal valued at around $5 billion.
In addition to Skydance, Apollo has made a $26 billion all-cash offer for Paramount, though the media conglomerate has reportedly rebuffed the deal due to concerns around financing for the bid. Meanwhile, Allen Media Group founder Byron Allen placed a $30 billion bid including debt for the company, though its unclear how that deal would be financed, and Paramount Global CEO Bob Bakish met with Warner Bros. Discovery CEO David Zaslav in December about a potential merger, though those talks have since halted.
“I just think that you would want a cash deal. The company isn’t that large and there are a lot of large companies out there that can afford to snap up Paramount easily, as well as the private equity firms that are out there,” Rogers Jr. said. “I have no problem with doing creative strategic thinking to maximize the value of all the different assets, which means possibly breaking up the company, both for financial reasons and regulatory reasons.”
Rogers Jr. believes Paramount is, at minimum, worth above $20 per share.
He touted the company’s assets, including Pluto, BET, Showtime and Paramount Studios. Additionally, he emphasized that the company has been making progress towards streaming profitability and is well positioned with valuable content whether it chooses to continue on with Paramount+, shift to selling content as an arms dealer or pursue both strategies concurrently.
“This is a case where it is still churning out extraordinary content,” he added. “These things are not deteriorating in any fundamental way, so there’s no reason to rush into the arms of the first bid. We’re patient investors here. They should take their time and do the right deal for the long term.”
Ellison and Skydance are currently in the process of conducting due diligence. In order for a deal to be consummated, it must receive approval from Paramount’s special committee of independent directors. On Thursday, Paramount confirmed that three of the members on that committee will not stand for reelection at the company’s annual meeting on June 4, though it did not provide a reason why.
“It’s disappointing because all we can do is speculate that some of these directors were directors that were willing to stand up and respect the entire process of independent directors with independent lawyers and investment bankers guiding them,” he said. “The fact that there’s a split there on the board and the committee is worrisome. Clearly, there’s different points of view on how to go forward.”
He believes that the board departures, combined with the heightened scrutiny and threat of litigation around the Skydance bid, will only make it harder for Ellison to have a successful merger.
“Mergers are hard enough in the best of circumstances, trying to fight for the synergies and go through the regulatory processes and all the things you have to do to make a deal happen and keep employees happy. If you’re spending half your time in court having to deal with the mess that’s there, it’s got to give you pause when you’re about to jump on the high wire act and have that much extra pressure. I just can’t imagine that’s good.”
If the Skydance deal doesn’t pan out, Rogers Jr. emphasized that Paramount has other options available.
“You can make the case that you can be patient and wait to see who wins the election in November and get a more regulatory friendly environment that would be very helpful to more people being willing to bid on the company. As we all know, there’s a real chill on M&A in this country under the current regulatory environment,” he said. “But at the same time, it’s hard to walk away from a certain deal with Apollo. I’m assuming you can negotiate with them and once they came in and they did their due diligence and they did their homework, you don’t have to pick their first bid. It’s always normal in a transaction you start with one price and end up somewhere higher.”
Paramount, which has a market capitalization of $7.5 billion as of Monday’s close, has seen its shares fall 50% in the past year, 27% year to date and 11% in the past six months.
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