Delaware Court Backs Gabelli’s Operation Fishbowl: A Milestone for Shareholder Activism

The Delaware Court of Chancery’s recent ruling in the Paramount-Skydance merger litigation has handed a critical procedural victory to activist investor Gabelli Asset Management Inc. (GAMI), which has spearheaded its Operation Fishbowl campaign to expose alleged preferential treatment of Paramount’s controlling shareholder, Shari Redstone. The court’s finding of a “credible basis” to suspect wrongdoing signals a turning point in a high-stakes battle over corporate transparency and fiduciary duty—one that could reshape how minority shareholders challenge opaque merger terms.

The Legal Backdrop: Operation Fishbowl and the Paramount-Skydance Deal

GAMI, the largest non-controlling holder of Paramount voting shares, has long argued that Redstone’s National Amusements Inc. (NAI) reaped disproportionate benefits in the $8 billion merger with Skydance Media LLC. Specifically, GAMI claims NAI received a non-ratable payout—an unspecified premium over the $23 per share offered to minority shareholders—for its 80 million voting shares. This disparity, GAMI argues, violates fiduciary duties owed to all shareholders.

The Delaware court’s ruling, issued in early 2025, rejected Paramount’s bid to dismiss GAMI’s books-and-records action. Instead, the court found sufficient grounds to proceed, noting that Redstone’s control over Paramount’s board and the merger’s lack of a fiduciary-out clause created red flags. The court also permitted GAMI to subpoena internal documents and minutes from Paramount’s special committee, which had rejected a rival $8.8 billion bid from Project Rise Partners—a decision GAMI claims was made in Redstone’s self-interest.

Why the Ruling Matters for Investors

The Delaware ruling underscores two critical trends in corporate governance:
1. Activist Investors Gain Leverage: By allowing GAMI to proceed with discovery, the court has empowered minority shareholders to challenge opaque transactions. This sets a precedent for activists to demand transparency in deals involving controlling shareholders.
2. Fiduciary Duty Under Scrutiny: The court’s focus on Redstone’s potential conflict of interest aligns with Delaware’s entire fairness standard, which applies when controlling shareholders have a direct financial stake in a transaction. If GAMI proves its case, Redstone and Skydance could face liability for breaching fiduciary duties.

Data-Driven Context: The Merger’s Financial Landscape

Paramount’s shares have traded near the merger’s $23 per share offer since the deal’s announcement, reflecting investor skepticism about its fairness. Meanwhile, the rejected $8.8 billion Project Rise bid—$5 billion higher than the Skydance offer—adds fuel to GAMI’s claim that minority shareholders were denied a superior deal.

The merger’s $400 million termination fee further complicates matters. Such fees, designed to deter rival bids, can entrench a transaction even if better terms emerge. The court’s expedited schedule, aiming to resolve the case before the merger’s FCC-approval deadline, heightens the stakes for all parties.

Risks and Uncertainties Ahead

While the Delaware ruling is a win for GAMI, the path to resolution remains fraught with challenges:
- FCC Approval Uncertainty: The merger requires federal approval, which is delayed due to an investigation into alleged political bias at CBS News (Paramount’s subsidiary). A prolonged delay could weaken the deal’s viability.
- Project Rise’s Resurgence: If GAMI’s discovery uncovers evidence that the special committee improperly dismissed Project Rise’s bid, a rival offer could resurface, forcing Paramount to revisit terms.
- Settlement Pressure: Paramount faces a separate $20 billion defamation lawsuit from Donald Trump, which could indirectly impact merger negotiations and regulatory outcomes.

Conclusion: A Paradigm Shift in Shareholder Activism

The Delaware court’s decision in Operation Fishbowl marks a watershed moment for minority shareholders. By validating GAMI’s suspicions of preferential treatment, the ruling signals that Delaware courts will rigorously scrutinize deals involving controlling shareholders—even in the face of entrenched interests.

For investors, the implications are clear:
- Activist Plays: Funds like GAMI, which employ Private Market Value with a Catalyst™ strategies, may see increased success in challenging opaque mergers.
- Risk Premium: Investors in companies with dual-class shares (like Paramount’s voting/non-voting structure) should factor in governance risks when valuing stakes.
- Regulatory Watch: The FCC’s role in this merger highlights the growing importance of regulatory hurdles in corporate transactions, particularly in media sectors.

As GAMI’s legal battle unfolds, the stakes extend beyond Paramount’s shareholders. This case could redefine the balance of power between controlling shareholders and minority investors in Delaware—a jurisdiction that remains the corporate governance capital of the U.S. For now, the court’s focus on transparency and fairness offers a blueprint for activists to demand accountability in an era of complex, high-value mergers.