Paramount to pay Skydance $400 million breakup fee if it gets better offer

Paramount Global

Even after reaching a deal with Skydance Media, Paramount Global has the right to seek a better offer within 45 days. But if Paramount accepts a more attractive buyout deal, it will have to pay Skydance a $400 million breakup fee, Skydance founder and CEO David Ellison told investors on a conference call Monday morning.

Under an agreement with Skydance and lender RedBird Capital Partners, the special committee of Paramount’s board of directors has a 45-day prospecting period during which it will be allowed to “actively solicit and evaluate alternative acquisition proposals.” Paramount said it “does not intend to disclose developments relating to the prospecting process unless and until it determines that such disclosure is appropriate or is otherwise required.”

The deal’s “go-shop” clause was agreed to by the Skydance team in lieu of Paramount Global’s non-voting shareholders approving the deal. The 45-day deadline is apparently intended to minimize the risk of shareholder litigation against Paramount’s board and Shari Redstone’s National Amusements Inc., which holds the majority voting stake in Paramount, by showing that they have made good-faith efforts to maximize the value of any M&A transaction.

The $400 million breakup fee is “unusually high” for a deal of this size and “would lend credence to one shareholder’s claim that the go-shop clause adds no protection to shareholders who claim Redstone is getting the upper hand on them,” said Erik Gordon, a professor at the University of Michigan’s Ross School of Business.

Jeff Shell, chairman of RedBird Sports & Media and former CEO of NBCUniversal, also participated in Monday’s investor call. He said the Skydance team has identified more than $2 billion in annual cost savings, including more than $1 billion in the first year. Shell is expected to become chairman of the “new Paramount” once the deal closes, expected in the first half of 2025.

Under the two-step deal between Skydance and Paramount, Skydance will acquire Redstone subsidiary National Amusements Inc., which owns a 77% controlling interest in Paramount; Skydance will then merge with Paramount Global. The Ellison family and RedBird Capital have announced they will invest up to $6 billion in the “new Paramount.”

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