Paramount Shareholder Mario Gabelli Is Still Mulling Lawsuit Over Skydance Deal

Billionaire investor Mario Gabelli still has not decided whether he’ll mount a legal challenge to Skydance Media‘s merger with Paramount Global.

Gabelli is the founder, chairman and CEO of GAMCO Investors, which represents clients who own about 12.5% of the Class A voting shares of Paramount Global. That makes the firm and its clients the largest Class A shareholder group after Shari Redstone’s National Amusements Inc. (NAI), Paramount’s controlling shareholder.

In an FCC filing, a lawyer representing the Gabelli Value 25 Fund and its affiliated funds, investment advisers and investors requested that the commission “defer resolution” of whether to transfer CBS’s broadcast licenses to the new ownership group comprising Skydance and RedBird Capital Partners until the investment firm has “determined whether to initiate litigation against Paramount’s board of directors, NAI, and/or Skydance for breach of fiduciary duty (or aiding and abetting) under Delaware law and/or whether the transaction violates federal law.”

Reps for Paramount Global, Skydance and NAI declined to comment. The letter, dated Nov. 8 and filed on Tuesday with the FCC, is available at this link.

Separately, a shareholder lawsuit seeking class-action status was filed in July against Redstone, NAI, Paramount Global board members, and Skydance and CEO David Ellison, per Paramount’s Nov. 4 SEC filing to register securities for a business merger or acquisition.

On July 7, after months of on-and-off negotiations, Redstone clinched a deal to sell NAI to Skydance-RedBird, which would then merge Paramount with Skydance.

On July 12, Gabelli Value “served a demand on Paramount to inspect certain books and records” pursuant to Delaware law concerning the company’s announced merger with the Skydance group, according to the letter from the investment company’s lawyer. That is “part of an ongoing inquiry by the Gabelli Entities into the fairness of the Merger to minority shareholders and, in particular, concerns relating to the sale of NAI’s controlling stake in Paramount,” said the letter to the FCC, which was signed by Vincent R. Cappucci, senior partner and chair of the securities litigation department at Entwistle & Cappucci LLP.

Regarding Paramount’s S-4 filing on Nov. 4, the Gabelli Value letter argued that, “The Proxy statement does not provide adequate disclosures concerning either the process leading up to board approval of the Merger or the fairness of the Merger consideration, nor does it provide any disclosure which would enable stockholders to ascertain whether consideration that should be paid to them is being diverted to NAI for its controlling stake in the Company.” In addition, the deal “is not subject to a vote by minority stockholders and minority shareholders are only being offered non-voting shares in post-Merger Paramount. This disenfranchises Class A holders who currently have voting rights and leaves the operation of these important media assets essentially unchecked,” the letter from Gabelli’s lawyer said.

In an interview with Variety in July following the Paramount-Skydance-NAI deal announcement, Gabelli praised the Skydance and Paramount teams for “a fantastic job” in detailing how the combined company could achieve synergies in content production and global distribution and through potential streaming joint ventures. However, Gabelli said he needed more transparency about the deal, and specifically the value of NAI’s sale.

The Paramount-NAI-Skydance-RedBird deal has an enterprise value estimated at $28 billion and gives Skydance an implied valuation of $4.75 billion. Shareholders of NAI will receive $1.75 billion and the assumption of NAI’s debt (for $2.4 billion total enterprise value) while Paramount Global Class B common shareholders will receive $15 per share. About $6 billion of the money to fund the deal is coming from the Ellison family (i.e. Larry Ellison) and about $2 billion is from RedBird. In October, the Skydance group submitted an updated filing with the FCC to reflect that David Ellison will hold 100% percent of the Ellison family’s voting interests in the newly combined Skydance-Paramount — not his father, Larry Ellison, as previous documents indicated.

The letter filed on behalf of Gabelli Value said, “The potential fiduciary and/or federal securities violations which are the subject of Gabelli Value’s investigation may have wide-reaching consequences for the Company and existing minority shareholders and, respectfully, should be considered by the Commission before it acts on the application for approval of the transfer of control of Paramount.”

According to Paramount’s Nov. 4 SEC filing, Skydance’s deal terms provide Redstone and other NAI shareholders “certain indemnification rights” relating to the sale capped at a maximum of $200 million. That replaced the previous the indemnification arrangements that were in place that had provided for “uncapped indemnification” of NAI shareholders “for losses incurred in connection with their status as the controller of NAI and, in the case of Ms. Redstone, Paramount, in any litigation relating to the Transactions or the NAI Transaction,” according to the S-4 filing.