Skydance Warns Paramount: Stop Negotiating with Bronfman or We’re Out
Skydance calls the offer from Bronfman ‘significantly less favorable than its own, and insists that Paramount reclaim all deal-related materials from his team.
The mood in the Ellison household is even worse than previously assumed. David Ellison’s Skydance Media has been watching from the sidelines as a competing bid for Paramount Global has taken shape over the past few weeks from Seagram liquor heir and former Warner Music chairman Edgar Bronfman Jr. The executive sent his offer to Paramount just hours before the “go-shop” window built into Skydance’s bid expired and the Paramount committee created to consider all merger and acquisition options has extended the time period to fully vet the proposal. According to The Wall Street Journal, Skydance has now stepped into the fray, sending Paramount a letter demanding that it halt negotiations with Bronfman immediately.
Key Details:
- Skydance says Paramount inappropriately extended the go-shop window since Bronfman’s deal is clearly inferior.
- The letter from Skydance raises the possibility that it will pull its deal off the table if action is not taken.
- Bronfman’s offer is for around $6 billion, while the Skydance deal is worth around $8 billion total.
Paramount exercised its contractual right to extend the go-shop period when it received Bronfman’s offer. The company will not speak to any other potential buyers during the extension; it is meant to allow Paramount to give Bronfman’s offer full consideration. With the extension, Paramount now has until Sept. 5 to decide between the two offers.
But according to Skydance, that’s a step too far. The terms of the deal only allow Paramount to extend the go-shop period if a bid like Bronfman’s “is or would reasonably be expected to lead to a superior proposal.” Skydance is arguing that Bronfman’s offer does not meet that threshold, and thus an extension should not be granted.
By not stopping negotiations with Bronfman when the original go-shop window ended on Wednesday, “Paramount has committed an incurable, material breach of the Transaction Agreement.” Skydance insists that all deal-related information should be destroyed or returned to Bronfman, and raised the possibility of pulling out of the transaction altogether.
“While Skydance is not currently exercising its right to terminate the Transaction Agreement, we reserve the right to do so in the future,” reads the letter sent by Skydance’s attorneys to Paramount on Thursday.
What’s the Difference Between Skydance and Bronfman Deal Offers?
Bronfman’s original bid was a $4.3 billion offer to buy National Amusements Inc., the holding company that controls 77% of Paramount’s voting stock on behalf of owner Shari Redstone. He improved that offer to $6 billion on Wednesday, the day that the go-shop period was set to expire.
The Bronfman deal includes $2.4 billion to buy National Amusements and another $400 million to pay the breakup fee that would be required if Paramount pivoted to his offer. It also has $1.5 billion to help pay down Paramount’s long-term debt. It’s similar to Skydance’s deal terms in these regards, but the key difference is the amount the two would infuse into their proposals to give Class-B shareholders the option to cash out.
Skydance’s deal has $4.5 billion set aside for this purpose, bringing its total valuation to around $8 billion. The Bronfman offer only has $1.7 billion earmarked for Class-B investors, but it argues that their value will not be diluted as it would under the Skydance deal, since Ellison plans to merge Paramount and Skydance together once he has control of both companies.
Skydance’s letter on Thursday said the Bronfman bid ” is significantly less favorable to the Paramount stockholders from a financial point of view, and says that the funding lined up by Bronfman to finance his deal is “highly contingent and uncertain.”
Paramount tried to seem noncommittal in a statement issued when it decided to consider Bronfman’s bid.
“There can be no assurance this process will result in a Superior Proposal,” said the Paramount board. “The Company does not intend to disclose further developments unless and until it determines such disclosure is appropriate or is otherwise required.”
Skydance followed a tortured path to get where it is in the Paramount negotiations. Several stops and starts have occurred along the way, before the two sides agreed to preliminary deal terms in early July. That agreement included the 45-day go-shop window in order to help insulate Redstone against lawsuits brought by investors who might try to claim that better deals were available had the company looked for them.
Paramount’s wandering eyes now have it in a precarious position. Redstone has preferred to do business with Ellison the whole time, but the letter sent by Skydance on Thursday leaves no doubt that Paramount has ruffled his feathers. The run-up to Sept. 5 could be a wild ride indeed, especially if Paramount decides to call Skydance’s bluff.
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