GAMCO Investors chairman Mario Gabelli is moving forward with a class-action lawsuit seeking damages for the “unfair and inequitable” merger payout given to Shari Redstone’s National Amusements Inc. and its affiliates in the Paramount-Skydance merger.
The suit, filed under seal in the Delaware Court of Chancery on behalf of Gabelli’s Value 25 Fund, its affiliates and approximately 750 separately managed GAMCO advisory clients who held Paramount’s Class A shares, follows the closing of the $8 billion deal last week.
In a statement, GAMCO Investors’ co-CIO Chris Marangi said the firm voiced its concerns early in the merger process, asking for more transparency regarding what NAI was receiving for Redstone’s voting shares. It also asked that the merger be put to a vote by the company’s minority shareholders.
“These concerns were ignored and, lacking the ability to continue holding voting shares in the new Paramount entity, GAMCO was forced to redeem its shares for cash,” Marangi added. “We now look to the courts to rectify the situation.”
Gabelli previously filed an initial books and records request in July 2024. He would subsequently file a formal complaint under a Section 220 demand in an effort to force Paramount to comply with his request.
Following a trial, a judge from the Delaware court determined that Gabelli’s Value 25 mutual fund “stated and proved a credible basis to suspect wrongdoing,” but stopped short of ordering Paramount to provide any additional documents. As of Jan. 31, Paramount produced nearly 6,000 pages of records for Gabelli’s initial request. As of March 19, he’d received nearly 10,000 of those documents, which included board and committee-level minutes and materials, director questionnaires and draft public filings.
GAMCO argues that, based on public documents and disclosures produced by Paramount’s special committee, it appears that the company assigned no value to NAI’s non-Paramount assets and that Redstone received in excess of $60 per share for her Class A shares, while GAMCO and other Class A shareholders received $23 per share.
Per a 13D filing with the U.S. Securities and Exchange Commission, Gabelli’s firm owned 4.89 million Class A shares, or 12.03% of Paramount’s voting stock, as of May 5. Gabelli elected cash over shares in New Paramount. Based on the $23 per share price, his voting stake would be worth $112.6 million.
Representatives for New Paramount and Redstone declined to comment.
Under the two-step deal, Skydance acquired NAI, which controls 77.4% of the Paramount Class A common stock outstanding and approximately 9.5% of the overall equity of the company, before merging with the Hollywood studio.
The deal provided $2.4 billion for NAI, $4.5 billion to non-NAI Paramount shareholders and an additional $1.5 billion in new capital to help pay down debt and recapitalize the company’s balance sheet. Redstone received approximately $1.75 billion for her controlling stake.
Class A shareholders were given the option to elect to receive $23 cash per share or 1.5333 shares of Class B stock of New Paramount, while Class B shareholders had the option to elect to receive $15 per share or one share of Class B stock of New Paramount, which is subject to proration if those elections exceed $4.3 billion in aggregate. If shares were elected over cash — reducing the cash required to under $4.3 billion — the $1.5 billion of cash going to Paramount’s balance sheet could grow up to a cap of $3 billion.
Skydance’s consortium of investors, which includes RedBird Capital Partners and the Ellison family, control 70% of shares outstanding and have 100% voting ownership in New Paramount. The combined company has an enterprise value of $28 billion, while Skydance is being valued at $4.75 billion.
In addition to Gabelli, the court previously granted the request of another Paramount shareholder, The Employees Retirement System of Rhode Island, to obtain books and records related to the Skydance deal.
Paramount shares, which now trade under the ticker symbol PSKY, have climbed 40% during Wednesday’s trading session and are up 32.9% in the past five days.
