Paramount, Skydance and the streaming wars

SPEAKER_1 (0:00)

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Pushkin.

Robert Armstrong (0:31)

The Paramount deal has finally gone through. It's a Hollywood earthquake. Today on the show, we're talking about the future of the movie business.

This is Unhedged, the markets and finance podcast from the Financial Times and Pushkin. I am Rob Armstrong coming to you from Unhedged World headquarters in New York City. Joining me today is the FT's US Deals editor, James Fontanella-Khan. James, welcome to the show.

James Fontanella-Khan (1:00)

Thanks for having me.

Robert Armstrong (1:01)

James, the last time you were on the show, and this really delights me, frankly. You told us this deal wasn't going to happen, and it just brightens my heart that someone besides me is wrong.

But tell me, what changed here that the deal did happen despite your prognostications?

James Fontanella-Khan (1:20)

Well, actually, I wasn't wrong because the deal did die. So, I think I was right then, and you guys didn't interview me again after it died.

Robert Armstrong (1:27)

Yes.

James Fontanella-Khan (1:28)

I could have told you, maybe it comes back. No, I mean, it died, then it came back, so yeah.

Robert Armstrong (1:33)

All right, so what happened? What changed?

James Fontanella-Khan (1:36)

As ever in deal making, it's all about the money. Shari Redstone, interestingly, when the deal first collapsed, said that she felt like the non-voting shareholders were not getting treated fairly. That was kind of the message that her spin doctors were pushing out.

But in reality, what happened after the deal collapsed, David Ellison, I got him mistaken with his father, Larry Ellison, the founder, and a billionaire, mega billionaire behind Oracle, the tech giant, David Ellison reached out to Shari Redstone and said, look, let's find a way to get this done.

And the way they did it is they gave her a bit more money to Shari, not the non-voting shareholders.

Robert Armstrong (2:24)

Who she was so concerned about.

James Fontanella-Khan (2:25)

Absolutely. And the other key factor is essentially providing greater protection to Shari Redstone again in case the shareholders sued her. It's important to kind of remind our listeners of the structure of this deal because it's not a straightforward deal. Essentially, Skydance agreed to buy NAI, National Amusements, which is a Shari Redstone company, which then controls Paramount.

And once you take control of Paramount, they are going to merge Paramount into Skydance, which is an independent movie studio, and then add some cash to make the non-voting shareholders happy.

Robert Armstrong (3:06)

This all sounds very complex.

And I know there is a window now, a 45-day window, in which others can intervene. Is this deal going to get done?

James Fontanella-Khan (3:16)

So this time around, I'm going to say that it will get done. But to your point, there's a 45-day go-shop clause. That means that anybody else could come in and offer more money and take over the company. If that happens, then Skydance will receive from Paramount a fairly chunky breakup fee. I think it's around 400 million. So whoever comes in with a better deal needs to top what Skydance is offering plus another 400 million. So the likelihood of that happening is low. And that also... part of the reason they put this 45-day go-shop clause is to protect themselves from potential lawsuits coming later on.

Because if nobody shows up, they can go back to the shareholders and say, look, we put it on the market, as you would with a house, nobody turned up. So this was the best deal out there.

And you should accept it.

Robert Armstrong (4:16)

Before we turn to the industrial implications of the deal, do you expect a lawsuit? Is somebody going to have a go at them?

James Fontanella-Khan (4:23)

There's always a lawsuit when you have a deal. So it wouldn't be shocking or surprising. I'd also add, Shari Redston has been kind of sued by non-voting shareholders before, and she has always won. I mean, the contention here is to help our listeners to kind of understand what is a genuinely complicated transaction.

Here you have a vehicle owned by a person that controls the majority of a company without really owning the economic majority. So NAI, National Amusements, owns about 10% of Paramount, but controls around 80% of the voting rights.