Ariel Investments is calling on Paramount Global to provide more transparency into its recent board changes and ongoing merger talks with Skydance Media.
The firm, which owned a 1.8% stake in Paramount as of the end of 2023, recently expressed concerns about the exclusive discussions with David Ellison, arguing that sidestepping competitive bidding would be “averse to fair market value.” It also warned that any transaction that benefits controlling shareholder Shari Redstone at the expense of the rest of Paramount’s investors is “unacceptable.”
In a letter to clients on Friday, Ariel Investments co-CEOs John Rogers Jr. and Mellody Hobson said they were surprised by the announcement that four members of the Paramount board — including three who are on the independent special committee evaluating bids — are exiting following the upcoming annual meeting. In its proxy filing, the media conglomerate revealed that it would reduce the size of the board rather than replace them, but did not provide any additional context on the departures.
“This timing was particularly disturbing given the falling share price. The lack of explanation or context in the company’s proxy filing regarding these changes alarmed us, too,” the pair said. “In the absence of any company-issued information regarding the merger, the reasons for the upcoming director departures or the board downsizing, we believed it was our fiduciary duty to publicly share our concerns.”
Rogers Jr. and Hobson called on Paramount to provide an explanation on the recent governance changes and ensure that the remaining members are “substantively independent and can fulfill its requirements and fiduciary duties in accordance with Delaware law.”
“Not doing so would deeply harm Paramount as well as shareholders like us who firmly believe in the company’s underlying value,” they said.
They also urged the board to ensure any transaction is “focused on realizing the company’s existing and long-term value and does not merely grant a premium to a single controlling shareholder.”
“If rumors are true, the litigation that will ensue against Paramount and its leadership will be materially detrimental to the value of the company,” the pair continued. “To this last point, investors should not have to rely on rumors, speculation and the media to consider such serious corporate dealings. Transparent corporate filings and statements would end the obfuscation that is whipsawing the stock.”
Additionally, the firm requested that the board engage in a competitive bidding process to maximize the value of the company’s assets for the benefit of all shareholders.
“Given the diminished Class B share price, it is clear to us that the market does not believe an exclusive deal with the currently proposed party will be good for all shareholders,” they said. “Usually, when merger transactions are announced, the shares find some equilibrium between the beginning price and the speculated ending price. With the stock having touched new lows, Paramount’s investors are voting with their feet. The lack of disclosures, questions surrounding board governance and company leadership as well as anticipation related to dilution from the rumored transaction have caused a repricing of the stock.”
While acknowledging that they “remain troubled” by Paramount’s silence, Rogers Jr. and Hobson said that they “never sell into chaos” and are “comfortable holding Paramount because the underlying value of the company’s content and studio assets are worth far more than its recent share price.”
“At Ariel, our patient investment philosophy resists knee-jerk reactions. Still, we diligently and continually assess changing conditions. We are concerned about the changing conditions at Paramount and do not believe the company should rush any merger, particularly under an exclusivity deal and with a controlling premium,” the letter concluded. “Instead, the company and board have a fiduciary duty and obligation to take the time needed to seek the right deal with the right partners at a price that will drive long-term success for all. We will continue to closely monitor this unusual situation. While not activist investors, we will advocate for a good outcome at Paramount for our clients and mutual fund shareholders.”
In an interview with TheWrap, Rogers Jr. revealed that Ariel Investments would not rule out litigation and that it has already engaged in preliminary discussions with outside counsel.
The letter comes as Skydance and Paramount continue to make progress in hammering out the details of a potential deal ahead of the expiration of its exclusivity window on May 3. It’s unclear if talks will be extended beyond that date.
Apollo Global Management has also made a $26 billion all-cash offer for Paramount, though that bid was reportedly rebuffed due to concerns about financing. The private equity firm has since entered talks with Sony Pictures Entertainment about the possibility of making a joint bid for Paramount, though no formal offer has been made.
In addition to Ariel Investments, other investors who have expressed their opposition to Skydance’s bid include Matrix Asset Advisors, Aspen Sky Trust and Blackwood Capital Management. GAMCO Investors Inc. chairman and CEO Mario Gabelli also previously warned he could pursue litigation if the Skydance deal or any other bid does not appropriately benefit their clients.
Shares of Paramount are up 11% in the past six months, but have fallen 48% in the past year and 17% year to date. The company’s market capitalization sits at $8.3 billion as of Friday’s close.
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