Paramount-Skydance Merger Could Cost Shareholders $1.65 Billion in Damages, Class-Action Lawsuit Argues

Paramount Global’s $8 billion merger with David Ellison’s Skydance Media could cost shareholders $1.65 billion, according to a proposed class-action lawsuit filed in the Delaware Court of Chancery on Wednesday.

“The principal reason for the Merger is to cash out Redstone’s floundering Paramount investment—and at a substantial premium to what will be received by other stockholders. Additionally, the Merger will allow Redstone to pay down NAI’s fast-maturing debt,” attorneys for Scott Baker, who owns over 40,000 Class B Paramount shares, wrote. “Redstone’s and NAI’s conduct, in conjunction with that of the Director Defendants, harmed and will harm Paramount’sClass B stockholders, who will not receive a fair share of benefits in the Merger as opposed to Redstone and NAI. Even Paramount’s non-NAI Class A shareholders, whose shares lack any true voting power, will inequitably receive an 88% premium over Class B shareholders in the Merger.”

Baker is suing to block the deal, accusing Redstone, Skydance and the Paramount board of directors, whom he claims is “packed with Redstone insiders over whom she exercises control,” of breaching their fiduciary duty to shareholders.

He argues the Paramount-Skydance process has been “history repeating itself from the earlier CBS-Viacom deal.”

“Redstone wanted the CBS-Viacom merger and did everything in her power to get it done, even if it took her a couple of years and required ousting directors, packing boards of both merging companies with directors who would support her, and using NAI’s status as controlling shareholder to get what she wanted,” the lawsuit states.

Under the terms of the Skydance agreement, which is expected to close in the third quarter of 2025 subject to regulatory approval and other customary closing conditions, National Amusements will receive $2.4 billion, including $1.75 billion for the equity and the assumption of $650 million in debt, while non-NAI shareholders will receive $4.5 billion. Meanwhile, $1.5 billion in new capital will be used to pay down Paramount’s $14.6 billion in long-term debt and recapitalize its balance sheet.

Skydance’s consortium of investors, which include RedBird Capital Partners and the Ellison family, will control 70% of shares outstanding and have 100% voting ownership in new Paramount, which will remain public.

Class A shareholders can elect to receive $23 cash per share or 1.5333 shares of Class B stock of new Paramount. Class B shareholder can elect to receive $15 per share or one share of Class B stock of new Paramount, which is subject to proration if those elections exceed $4.3 billion in aggregate. If shares are elected over cash, reducing the cash required to under $4.3 billion, the $1.5 billion of cash going to Paramount’s balance sheet could grow up to a cap of $3 billion.

But Baker argues that there is not enough cash in the deal to buyout all of the non-NAI Class B shares.

“That payout is only worth $12.23 per Paramount Class B share,” he said. “Thus, when the Merger closes, the non-NAI Class B shareholders will suffer $1.645 billion in damages.”

The Skydance deal also includes a 45-day go-shop provision, in which Paramount would pay a $400 million breakup fee in the event that the company receives a better offer from another bidder, which he argues is “exceptionally high.”

“Of the over 1,000 acquisitions in the United States in the last decade that were valued at more than $1 billion, only 3% had a break-up fee of 4.8% or more,” Baker added. “This impediment makes it unlikely that a better offer will surface in the go-shop period.”

Baker’s lawsuit comes after GAMCO Investors Inc. chairman Mario Gabelli filed a books and records request in Delaware earlier this month seeking more specifics on Redstone’s payout in the deal. Gabelli is the largest class A shareholder behind Redstone, with GAMCO representing clients that own 5 million Class A shares and 1 million Class B shares.

Additionally, the Employees’ System of Rhode Island filed its own records request in May , with the pension fund expressing concern that Paramount’s board not preventing Shari Redstone from diverting corporate opportunities or interfering with Paramount’s ability to seek the best deal for Paramount and its other stockholders.” A ruling in that case has been scheduled for Aug. 2.

Representatives for Paramount declined to comment. Skydance and National Amusements did not immediately return TheWrap’s request for comment.

Bloomberg was the first to report the lawsuit.

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