Mission Impossible: how talks to sell Paramount turned into a Titanic flop

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

Ellison got word on Tuesday morning in Los Angeles from an adviser to Shari Redstone, the heiress who controls the media group behind classics including The Godfather, Chinatown and Titanic, that all the financial details of the deal had been ironed out. At a 2.30pm (New York time) meeting 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 the Skydance bid were set to recommend it, Redstone’s lawyers Ropes & Gray sent a terse email to the special board committee saying the deal was dead. “While it is true we’re agreed on all material economic terms, there are other terms outstanding, and we are basically backing away,” the message said, according to a person with knowledge of the matter, who paraphrased its content.

“Shari effectively killed a deal that was fully negotiated, fully done on all key economics two minutes before the special committee meeting,” the person added. “That was that.”

It was an abrupt, bitter ending to a story whose two protagonists had formed an unlikely bond. Both are children of hard-charging 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 to Paramount, having produced a number of blockbusters alongside the studio, including Top Gun: Maverick.

But in recent weeks, their bond weakened as they clashed over the details of the deal — and speculation swirled that Redstone was having doubts about letting go of the family business. When it was all over, exasperated advisers said they could not recall 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 lot on Melrose Avenue and century-old library of films.

The studio has struggled to adapt to the digital era but Ellison, 41, believed he could fix the group’s mounting problems. Its once-mighty, generation-defining television channels such as MTV are in long-term decline while the Paramount+ streaming service is losing money.

Paramount, valued at less than $8bn on the stock market, has more than $14bn in debt, which was recently downgraded to junk. Investors have lost faith that the company can compete on its own, making it the subject of takeover speculation for several years. Shares have declined 30 per cent this year, including a nearly 15 per cent fall since talks were called off.

Line chart of Paramount shares faded as talks stalled ($) showing Terminator

The deal was never going to be easy to pull off. Ellison’s plan had two steps: First, his company would buy National Amusements (NAI), the Redstone-controlled group which holds 77 per cent of Paramount’s voting shares. Then Paramount would acquire Skydance in a stock deal.

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

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

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

Nonetheless, Redstone had started to lose trust in Ellison following the adjusted offer, people close to her said. The same people added that despite Redstone’s changing perception of Ellison, the founder of Skydance was highly respected by NAI and Paramount’s advisers for his integrity throughout the process.

It was only after Ellison was told the deal was dead that Redstone informed him that she was upset by the reduction in the cash offer for her stake, said a person close to her. “She was unhappy that she didn’t get more,” the person said.

Other people close to Redstone disputed this, saying the deal collapsed because Ellison’s camp resisted calls to allow non-voting shareholders to register their “consent” — or lack thereof — for the transaction through some kind 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 matter had been cleared at the very start of the negotiation.

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

Throughout the process, other potential bidders came and went. Paramount shares declined in December when it emerged that Bakish had met his counterpart at Warner Bros Discovery, 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 alongside Bain Capital.

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

Several people said Redstone could not get her head around parting with a company that had been founded by her grandfather and built into a global force by her father, with whom she had a fraught relationship.

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

“If all Skydance is going to do is take costs out of the business and streamline the streaming business, we could just do that ourselves without the litigation risk and 12 to 18 months [to get to] closing,” said one person familiar with the strategy.

However, some investors seem baffled by the idea. “It could be OK as a caretaker model,” said John Rogers, chair and co-CEO of Ariel Investments. “But I have not experienced anything where you had a long-term arrangement with three leaders. It just is not normal.”

Multiple 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 up to 2010, was against the deal and spoke out against it frequently, said former and current board members at Paramount. He did so by putting numerous roadblocks to a deal with Skydance and by talking negatively about the Ellison family to Redstone, the people said.

A number of people involved in the process said Phillips should have recused himself from the process as he was personally against the Ellison family because of their history. Phillips did not immediately respond to a request for comment.

Pushing from 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 participation as a reason that tensions rose over the past week. “The more Larry gets in it, the more the relationship deteriorates,” said one person familiar with the situation. “There had been a fondness for David, but Larry is more pointy elbowed.

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

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

Like a classic Hollywood cliffhanger, the collapse leaves Redstone in a bind with no obvious way out. Paramount is small, struggling and twisting under a mountain of debt, and the stock price is in free fall. Her family’s wealth is strained by financial pressures linked to her father’s death. And NAI has its own debt burden. Yet even after months of negotiations, people close to Ellison’s bid say they are unsure of what motivated Redstone to pull the plug.

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


Business Asia
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