Hedge fund Barington urges Paramount to scrap talks with Skydance

By Thomson Reuters Apr 12, 2024 | 1:53 PM

By Svea Herbst-Bayliss and Dawn Chmielewski

NEW YORK (Reuters) – Hedge fund Barington Capital on Friday urged Paramount Global to scrap its exclusive merger talks with Skydance Media, arguing all shareholders would benefit if the company looked at other potential bidders.

The New York-based hedge fund, which owns 325,000 shares in Paramount, has joined a chorus of increasingly disgruntled investors who say they are fearful of being cheated in a potential deal that is widely seen as favoring the company’s controlling shareholder, Shari Redstone.

“We strongly object to the Special Committee’s decision to enter into an exclusivity agreement with Skydance – or any party for that matter,” Barington portfolio manager James Mitarotonda wrote to the Paramount board. “By choosing not to negotiate with other parties or permit them to conduct due diligence, the Special Committee has effectively chilled the process.”

Paramount entered into a 30-day exclusive negotiating period with Skydance, the studio that partnered with Paramount Pictures on such hits as “Top Gun: Maverick,” as a special committee of the board evaluates the possible acquisition of the smaller independent studio in a stock deal worth $4 billion to $5 billion.

Skydance is negotiating separately to acquire National Amusements (NAI), a company that holds the Redstone family’s controlling interest in Paramount, according to a person familiar with the deal terms. That transaction is contingent upon a Skydance-Paramount merger.

Mitarotonda, whose fund has pushed for changes at companies ranging from toymaker Mattel to restaurant owner Bloomin’ Brands to clothing company Chico’s, was especially critical of potential conflicts of interest and self-dealing in the Skydance deal.

“Redstone is free to enter into any transaction for NAI that she chooses on terms that she deems acceptable. However, the board and the special committee cannot allow Ms. Redstone to enter into a deal for NAI, where the completion of that deal is contingent upon Paramount having to acquire another entity – in this case Skydance – at a significant premium that is dilutive to all other stockholders,” he wrote.

The battle over the two companies’ future comes only a week after Walt Disney fended off Trian Fund Management from winning board seats and playing a role in directing entertainment giant’s future at a time companies are grappling with how to integrate artificial technology and customers’ changing tastes in consuming media.

Instead, Barington urged Paramount to consider an approach from private equity giant Apollo Global Management which has expressed interest in buying Paramount for more than $26 billion including debt. “Barington does not have a crystal ball, but the Apollo offer appears simpler, cleaner and adequately value enhancing given the numerous risks embedded in the Skydance deal,” the letter said.

Paramount declined to comment on the letter which was first reported by Bloomberg.

Earlier this week larger investors, including Ariel Investments and Gabelli Funds expressed their concerns.

(Reporting by Svea Herbst-Bayliss in New York and Dawn Chmielewski in Los Angeles; editing by David Evans)