Inside the Bronfman Bid for Paramount: No ‘Operational Distractions’ of Skydance Merger, Better for ‘B’ Shareholders | Exclusive

Edgar Bronfman’s late-breaking, $4.3 billion offer to acquire Paramount Global argues that it avoids the “inequitable governance arrangement” of the $8 billion bid by Skydance Media and removes operational distractions of a merger with Skydance, according to the offer letter reviewed by TheWrap.

The offer letter maintains that the terms of his bid are more favorable to second-tier investors by proposing that Paramount operate as a standalone public company.

“Our proposal represents a much more favorable outcome for Paramount stockholders and creates a far more viable public company than the Skydance Deal,” Bronfman wrote.

The Bronfman bid submitted on Monday nigh t would aim to double Paramount’s adjusted earnings in the first year through a combination of $3 billion in permanent cost savings and the use of technologies to enhance Paramount’s capabilities — and nearly triple its stock price, Bronfman wrote in the 13-page offer letter sent to Paramount’s special committee evaluating bids.

The deal being offered by Bronfman, the former CEO of Warner Music Group and Universal Studios chief, would be less dilutive overall to Paramount shares, he said, and avoid the “operational distractions” associated with combining Paramount and privately held Skydance, as Bronfman is proposing to operate Paramount as a standalone public company.

While it does not offer a big premium to entice Class B public shareholders, who have no voting power in Paramount but control 94% of its value, Bronfman is planning to change the voting structure and give public shareholders more control of the Hollywood entertainment giant that until now has been wholly controlled by Shari Redstone, Paramount’s non-executive chairwoman.

For Class A shareholders who are not a part of National Amusements’ share of Paramount, the deal would offer a 7% premium to the $23 cash price in the Skydance deal. Bronfman plans to offer those shareholders a choice between $24.53 a share in cash or exchanging their shares for 1.5333 Class B shares. But Redstone, through her National Amusements Inc. holding company, controls 77% of Class A shares, which have 100% of the voting power over Paramount.

Under the Skydance deal, Redstone would be essentially passing that control on to Skydance and its CEO, David Ellison, the son of billionaire Oracle founder Larry Ellison.

Ellison vs Bronfman

Under Bronfman’s deal, “all major decisions will be determined by a Board consisting of at least a majority of independent directors,” Bronfman wrote. Under Skydance’s proposal, the board will be controlled by non-independent directors and Paramount would “avail itself of all controlled company exemptions.

Under terms of the Skydance deal, Skydance would wholly acquire National Amusements and then combine with Paramount in a second transaction.

The Skydance deal, Bronfman said, would leave public Class B shareholders owning only 30% of the pro forma Paramount, and with only 31% of publicly traded Class B shares.

“Such a small float is unusually restrictive for a public company,” Bronfman continued, and “it is a float that cannot and will not trade well. In other words, though Skydance will own 70% of Paramount, they will enjoy an even higher percentage of the upside, as the public shareholders will be left with a poorly traded and much maligned stub.”

Under terms of his offer, Bronfman would also issue $1.5 billion of new Class B shares at $16 a share compared to $15 per share in the Skydance offer. But within two years of closing the acquisition, Bronfman plans to change the voting structure into a single share class where Class A shareholders would receive 1.53 Class B shares per Class A share. “As a result, the Class B public stockholders will control Paramount,” he said. “The Class B shares will all be afforded equal voting rights and Paramount will cease to be a controlled company.

An individual close to Skydance responded that Bronfman’s logic was incorrect. “Governance would stand toe to toe with the economics of the deal,” said the insider. “Control aligns with the economics.” This individual pointed out that under the Bronfman plan, shareholders of publicly-held B stock receive no premium at all.

Representatives from Skydance, Paramount and National Amusements declined to comment.

In his letter, Bronfman urged the Special Committee extend the window for accepting new bids, which is due to expire on Wednesday, to consider his group’s bid. The committee could extend to Sept. 5 under terms of the Skydance merger agreement. Bronfman noted that his investor group, while offering $4.3 billion, is prepared to commit up to $5 billion to the acquisition.

An Uphill Battle

An individual familiar with the deal told TheWrap on Monday that Bronfman was aware that he faced an uphill battle in persuading the Paramount special committee to give his bid due consideration, and that it could be a potential challenge overcoming the influence of Larry Ellison’s money. Ellison, the fifth-richest man in the world with a fortune Forbes pegs at $170 billion, agreed to put in $6 of family money into his son’s $8 billion Skydance bid for NAI and Paramount, as TheWrap previously reported. (RedBird Capital Partners will contribute the remaining $2 billion.)

The source said that Redstone, who is the key decider in the fate of Paramount, had been receptive to Bronfman’s counteroffer. “She has been very encouraging about this bid,” the individual said.

Nevertheless, Bronfman asserted in his letter that the “onerous and preclusive lock-up provisions” in the Skydance agreement had made it difficult for other bidders. “Make no mistake,” Bronfman said, “the extremely Skydance-favorable, so-called go-shop ensures that, absent judicial intervention, Paramount’s chance for an independent future will end in a matter of days.”

He was highly critical of the Skydance deal, which has already drawn shareholder lawsuits, noting that Skydance is expected to generate less than $100 million of adjusted (EBITDA) earnings in 2024, which implies an acquisition multiple exceeding 50 times in an all-stock transaction, “wildly in excess of any comparable studio transaction in history.”

Bronfman asserted that his proposal would require less regulatory scrutiny than the Skydance deal because it would not involve combining with another company.

Performance pledges

Bronfman said that his plan would produce at least $5.5 billion of EDBITDA within 12 months of closing — double Paramount’s estimated EBITDA — and drive Paramount’s shares, which are trading just below $11, above $30 a share. And he anticipates revenue growth of mid-single digit percentage and profit margins approaching 20% within two years of closing.

The investor group estimates a 5% compounded annual growth rate over five years by making investments in expanding Paramount’s intellectual property globally, TV production for owned and third-party platforms and through “investments into owned and third-party content” in Paramount+.

The offer letter cites a goal of cutting $3 billion in costs through achieving “meaningful profitability” in the DTC segment, employing the latest AI technology to “modernize workflows,” managing the TV Media segment to “maximize free cash flow” and through “attacking the many structural inefficiencies” in the company.

Much of Bronfman’s proposal focuses on partnerships. He said he would outsource technology and cloud expenses in Paramount’s direct-to-consumer business and partner with other DTC platforms. He also talks about collaborating with “world class brands and marketing experts” to make more money from existing IP in order to expand into interactive games, toys and live events. And he said he would increase engagement and deepen ties with “leading independent studios,” while also “optimizing costs and creatively expanding” Paramount’s film slate with new distribution and marketing partnerships.

The leadership team

Bronfman, who currently is Executive Chairman of FuboTV, would be the CEO of Paramount. He has a history of executive leadership in entertainment. He ran Warner Music Group from 2004 to 2011, after engineering its acquisition, and he also ran Universal Studios (then MCA), was Vice-Chairman of Vivendi Universal and also co-founded Fandango. He is a billionaire member of the Bronfman family from Canada, which created its wealth from liquor company Seagram.

Also part of the proposed leadership team is Jon Miller, who ran the digital media group at News Corp and FOX, was a general manager of NBA Entertainment and managing director of Nickelodeon International, MTV Networks.

Bronfman also named as a member of the leadership team Steven Paul, a film executive who is part of the investor group. Paul has worked on more than 100 feature films. He is the current CEO of SP Media Group and Atlas Comics, among other companies.

Rounding out the team would be John Martin, the former CEO of Turner and former chief financial and administrative officer at Time Warner. At Time Warner, Martin oversaw the spinoffs of Time Warner Cable, AOL and Time Inc.

Paul, cryptocurrency mogul Brock Pierce and Kazakh investor Nurali Aliyev are part of the 19-strong investor group behind Edgar Bronfman bid, TheWrap reported earlier on Tuesday. In addition to Bronfman himself, the group also includes Fortress Investments, the private equity group funded by Japan’s Softbank and India’s Mubadala.

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