how talks to sell Paramount turned into a Titanic failure

After more than six months of grueling negotiations, David Ellison thought he was on the verge of landing the deal of a lifetime: taking over Paramount, Hollywood’s century-old studio.

Ellison took the floor Tuesday morning in Los Angeles from an adviser to Shari Redstone, the heiress who controls the media group behind the classics, including Godfather, Chinatown AND Titanic, that all the financial details of the deal were ironed out. At a meeting at 2:30 p.m. (New York time) on Tuesday, Paramount’s special committee planned to greenlight the proposal from Ellison’s company, Skydance Media.

And then came the plot twist. Minutes before the independent advisers evaluating Skydance’s bid were set to recommend it, lawyers for Redstone Ropes & Gray sent a brief email to the special board committee saying the deal was dead. “While it is true that we have agreed on all material economic terms, there are other outstanding terms and we are essentially backing out,” the message said, according to a person with knowledge of the matter, who paraphrased its contents.

“Shari effectively killed a deal that was fully negotiated, fully concluded on all major economic issues two minutes before the special committee meeting,” the person added. “That was it.”

It was an unexpected, bittersweet ending to a story whose two protagonists had formed an unlikely bond. Both are children of billionaire fathers: Redstone, 70, is the daughter of Sumner Redstone, who built the media and entertainment empire that is at the core of Paramount — a group that also includes the CBS television network, MTV, Comedy Central. and Nickelodeon. Ellison’s father, Larry, is the billionaire co-founder of Oracle, the software group.

David Ellison also has a deep connection with Paramount, producing a number of blockbuster films alongside the studio, including Top Gun: Maverick.

But in recent weeks, their relationship weakened as they clashed over the details of the deal – and speculation ran rampant that Redstone had doubts about giving up the family business. When it was all over, angry councilors said they couldn’t remember a messier process. And observers from Wall Street to Hollywood were left wondering what Redstone’s next move will be.

Paramount presented a rare opportunity for Ellison to gain control of one of Hollywood’s crown jewels, rich in history with its iconic Melrose Avenue lot and century-old film library.

The studio has struggled to adapt to the digital age, but Ellison, 41, believed he could fix the group’s growing problems. Its once-powerful, generation-defining TV channels like MTV are in long-term decline while streaming service Paramount+ is losing money.

Paramount, valued at less than $8 billion on the stock market, has more than $14 billion in debt, which was recently written down to junk. Investors have lost faith that the company can compete on its own, making it the subject of takeover speculation for several years. The stock has fallen 30 percent this year, including a nearly 15 percent drop since the talks were called off.

The trailing chart of Paramount stock faded as talks stalled ($) showing Done

The deal was never going to be easy to come by. Ellison’s plan had two steps: First, his company would buy National Amusements (NAI), the group controlled by Redstone, which holds 77 percent of Paramount’s voting stock. Then Paramount will buy Skydance in a stock deal.

The first cracks appeared in May when Ellison’s consortium, which included private equity groups RedBird and KKR, as well as his family’s fortune, adjusted its bid after it became clear that Paramount’s common shareholders were planning to fought against. Some holders of Paramount’s non-voting stock publicly threatened to sue if the deal went through, saying all the value would go to Redstone, who holds most of the voting stock.

So Ellison’s team decided to pay NAI—and by extension, Redstone itself—less than originally proposed to sweeten the deal for Paramount’s B shareholders.

After Skydance decided in May to reduce its bid for NAI from $2.5 billion to $2.3 billion, including debt, Redstone stopped talking to Ellison, people briefed on the matter said. Others involved said the decision to stop communication was out of respect for the negotiation process with the special committee. NAI eventually agreed to the lower bid of $2.3 billion, these people added.

However, Redstone was beginning to lose faith in Ellison after the arranged offer, people close to her said. The same people added that despite Redstone’s changed perception of Ellison, the Skydance founder was highly respected by NAI and Paramount advisers for his integrity throughout the process.

Only after Ellison was told the deal was dead did Redstone inform him she was upset by the reduced cash offer for her stock, a person close to her said. “She was unhappy that she didn’t get more,” the person said.

Other people close to Redstone disputed that, saying the deal fell through because Ellison’s camp resisted calls to allow non-voting shareholders to register their “consent” — or lack thereof — to the transaction through some sort of tally. . “Obviously that would have provided protection against shareholder litigation,” said another person familiar with Redstone’s thinking.

People close to Skydance and Paramount said Redstone decided to use the “consent” vote as a last-minute excuse to kill the deal; the issue was clarified from the beginning of the negotiations.

There were other signs of friction as Redstone pursued the sale. In April, Redstone fired its long-trusted chief executive, Bob Bakish, who had made little secret of his opposition to the Skydance deal and continued talks with other potential suitors. She replaced Bakish with three Paramount executives who formed an “office of the CEO.” Four other board members left this spring.

Throughout the process, other potential bidders came and went. Paramount’s stock plummeted in December when it was revealed that Bakish had been dating his Warner Bros. Discovery counterpart, David Zaslav. Private equity group Apollo approached Paramount twice, most recently with Sony as a partner. And this week Edgar Bronfman Jr., the Seagram heir, made an approach along with Bain Capital.

Multiple people directly and indirectly involved in the process said there was more than money that convinced Redstone to walk away from a deal with Ellison that she had initiated months earlier.

Some people said Redstone couldn’t bring herself to part with a company that was founded by her grandfather and built into a global force by her father, with whom she had a rocky relationship.

Redstone appeared to have stuck to the turnaround plans drawn up by the three members of the CEO’s office — a group many had expected to be mere placeholders until the Skydance deal was completed. But last week they unveiled a plan to cut costs and reorganize the group, and she has given them her blessing.

“If all Skydance is going to do is take costs out of the business and improve the broadcast business, we can do it ourselves without the risk of litigation and 12 to 18 months [to get to] closing,” said a person familiar with the strategy.

However, some investors seem confused by the idea. “It might be OK as a guardianship model,” said John Rogers, chairman and co-CEO of Ariel Investments. “But I haven’t experienced anything where you’ve had a long-term deal with three managers. It’s just not normal.”

Many people, including former and current board members, said another factor playing against Skydance was the role played by Charles Phillips, a Paramount board member who tried to torpedo the deal throughout the process.

Phillips, who worked at Oracle until 2010, was opposed to the deal and frequently spoke out against it, former and current Paramount board members said. He did so by putting multiple obstacles in a deal with Skydance and speaking negatively about the Ellison family at Redstone, the people said.

A number of people involved in the process said Phillips should have withdrawn from the process because he was personally against the Ellison family because of their history. Phillips did not immediately respond to a request for comment; a person close to the board disputed the claim, saying he “has deep respect for the Ellisons”.

Pushed in the other direction was another Oracle veteran: Larry Ellison himself, who became more involved as the negotiations drew to a close. Some in the Redstone camp pointed to Larry Ellison’s involvement as a reason tensions rose last week. “The more Larry gets into it, the more the relationship deteriorates,” said a person familiar with the situation. “There was a love for David, but Larry is sharper with the elbow.

Another person involved in the deal talks dismissed such concerns. “Larry was definitely involved,” he said. “Larry was writing a big check.”

Despite the tensions, David Ellison believed he would sign a deal to buy Paramount this week. “Everything was resolved,” said one person involved.

Like a classic Hollywood skid, the collapse leaves Redstone in an apparent dead end. Paramount is small, struggling and writhing under a mountain of debt and its stock price is in free fall. Her family’s fortunes are strained by the financial pressures associated with her father’s death. And NAI has its own debt burden. Still, even after months of negotiations, people close to Ellison’s bid say they aren’t sure what motivated Redstone to pull the plug.

“Ultimately, [maybe] she reached the finish line and decided she couldn’t sell her legacy,” said one.

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