Why Shari Redstone went cold on a Paramount sale to Skydance

For seven months, media mogul Shari Redstone agitated for Paramount Global’s leaders to embrace her plan to hand the storied media company to tech scion David Ellison.

Paramount then-Chief Executive Bob Bakish and several board members resisted. Investors howled that the Ellison deal would give Redstone and her family a rich premium for their controlling Paramount shares — at the expense of regular shareholders. Undeterred, Redstone sacked Bakish, her longtime lieutenant, and four board members were shown the door.

By late Saturday, the Redstone family and Ellison’s Skydance Media had agreed on major deal terms. Ellison — the son of tech billionaire Larry Ellison — was poised to capture his hard-fought prize. Paramount’s weary workers checked their email, expecting a major announcement to land at any moment. Independent board directors scheduled a 11:30 a.m. Tuesday meeting to formally consider the deal.

But just as the meeting got underway, Redstone called with stunning news.

The Skydance deal was dead.

Redstone’s change of heart, after months of drama and tensions spilling into public, was the culmination of several forces that had been playing out behind the scenes, according to seven people close to the situation who were not authorized to comment on internal discussions.

Redstone’s adult children — who are in line to inherit the family’s fortune — had initially advocated for the Skydance deal, according to two of the sources. But, by early this month, the matriarch was becoming increasingly uncomfortable.

On Monday, three sources said, Redstone and her children had agreed to hold on to their heirloom, abruptly ending one of the industry’s most calamitous auctions.

“It’s Shari’s company,” said one insider. “She had kicked and clawed for control, and she just wasn’t ready to let go.”

What prompted Redstone’s reversal?

The 70-year-old mogul was unhappy with changes to deal terms that would have meant less money flowing to the family’s holding company, National Amusements Inc., two sources said.

The family initially expected around $2 billion for NAI, which owns 77% of Paramount’s voting shares. But the deal was restructured (with Redstone’s buy-in) to provide more money to common shareholders, which would have left the family with about $1.7 billion after NAI’s debt was paid, the knowledgeable people said.

Separately, Redstone wanted to be indemnified from costly shareholder lawsuits and give other shareholders the ability to weigh in. But that was a sticking point for Skydance.

And other suitors have emerged. In recent weeks, Redstone received overtures to sell just National Amusements and its controlling Paramount shares, which would represent a more straightforward transaction.

Former top Seagram and Warner Music executive Edgar Bronfman Jr. and Hollywood producer Steven Paul (“Ghost in the Shell,” “Baby Geniuses”) have separately expressed their desire to buy National Amusements. Both prospective bidders signaled they would pay more than the amount that National Amusements would have received under the Skydance bid.

The Redstones wanted to honor their late patriarch by not selling the family jewels at a low. The Redstone family anticipates a better offer for NAI will soon materialize, sources said.

The sale of Paramount would have marked an end of an era for the Redstone family, which has long cherished its position in Hollywood. And it was Shari Redstone who toiled for years on the sidelines of her father Sumner Redstone’s sprawling empire. The hard-driving late mogul and his high-level executives at his company, then known as Viacom, were dismissive of her talents and ambition.

But Shari Redstone hung in, and in 2016, as her father’s health was failing, she led a sweeping corporate housecleaning.

Three years later, Redstone achieved her longtime goal by reuniting Viacom and broadcaster CBS. The combined company was renamed Paramount Global in 2022, but its stock has since cratered. Shareholders, including legendary investor Warren Buffett, bailed.

Bakish’s ouster was key to the unfolding drama, sources said.

Redstone and Bakish had been struggling behind the scenes since November, knowledgeable people said. She had grown increasingly impatient with Paramount’s sluggish stock performance and the downgrade of its credit to “junk” status. And she was furious over Paramount’s May 2023 decision to cut its dividend to shareholders, according to three sources.

The dividend cut devastated the Redstones’ company, NAI, which then turned to Chicago banker Byron Trott and his BDT Capital Partners for a $125-million cash infusion last year to pay creditors who were demanding money.

Bakish was fired April 29. In an unusual arrangement, the board installed three division heads — George Cheeks, the leader of CBS; Chris McCarthy, the cable entertainment chief; and Brian Robbins, the head of Paramount movie studio and Nickelodeon — as the “Office of the CEO.” The trio immediately went to work to craft a business plan for Paramount that would satisfy Redstone and Wall Street.

After Paramount’s June 4 shareholders’ meeting, the three executives gave a private presentation that wowed Redstone and others on the board, people familiar with the matter said.

The company finally seemed to have a path forward on its own.

The three executives also developed a kinship with Redstone, who was newly reinvigorated over the challenge of restoring Paramount to greatness.

The CEOs’ plan centers on $500 million in cost cuts — including an undisclosed number of layoffs — and selling assets, which analysts say could include cable channel BET and TV stations not affiliated with CBS. The group also said they would explore a joint venture for the company’s Paramount+ streaming service.

Talks last fall with Comcast over a streaming joint venture stalled because, at the time, Redstone was pursuing the Skydance deal.

“Their balance sheet is, in a word, unhealthy, and they need a cash infusion to improve the balance sheet, which means they need to sell the assets,” Bernstein & Co. media analyst Laurent Yoon said. “They have no other choice.”

Another obstacle to a deal with Skydance was the Redstone family’s worries that a regulatory review process could stretch 18 months, causing more instability for the struggling media company. The deal-making “was already taking forever,” one insider said.

There were other factors too. Paramount’s lead independent director, Charles Phillips Jr., had long been opposed to the two-phase $8-billion transaction with Skydance. The Santa Monica production company, its investors RedBird Capital Partners and private equity firm KKR, along with Larry Ellison, were putting billions of dollars into the deal.

Phillips, a former president of Larry Ellison’s Oracle Corp., had left that software giant in 2010 on rocky terms. There’s been speculation that Redstone is now eyeing Phillips for a bigger role.

“We continue to believe that Redstone/National Amusements is likely to appoint current Paramount board member and former Viacom board member, Charles Phillips, as CEO,” industry analyst Richard Greenfield wrote in a note.

A person close to Redstone downplayed speculation, saying the mogul has deep respect for Phillips as well as for Cheeks, McCarthy and Robbins.

David Ellison, who has earned standing in Hollywood as a successful movie producer, had planned to install his own leadership group at Paramount, which would have left Robbins, the movie studio chief, particularly vulnerable, the sources said.

Executives in McCarthy’s cable programming division also felt threatened, recognizing that their futures were uncertain because Skydance may have decided to sell cable channels to pay down debt. “Now, they live to fight another day,” another insider said Wednesday.

The company could choose to weather a few years of pain as it pares itself down to a pure-play content company, analysts said.

Paramount shares closed Wednesday down 8 cents to $11.12.

The scuttled sale doesn’t solve National Amusements’ financial problems.

“We believe National Amusements is keen to sell Paramount eventually,” Greenfield, the analyst, said. “We suspect the next 12-18 months is a ‘pause’ in the Paramount [merger and acquisition] process, not the end.”

Times staff writer Samantha Masunaga contributed to this report.