The Paramount Merger and the Perils of Minority Shareholder Value in a Concentrated Governance Landscape

The Paramount-Skydance merger, announced in July 2024, has reignited a critical debate about corporate governance in an era of concentrated ownership. At its core, the transaction—a $28 billion restructuring involving the acquisition of National Amusements, Inc. (NAI) by the Skydance Investor Group—offers a case study in how control transitions can either mitigate or exacerbate risks for minority shareholders. For investors, the deal raises urgent questions: Can a cash election mechanism truly protect minority value when governance structures remain tilted toward controlling stakeholders? And what does this merger reveal about the broader challenges of corporate accountability in an industry where voting power is often a proxy for wealth?

The Mechanics of the Cash Election

The merger's cash election provisions are designed to provide immediate liquidity to public shareholders. Class A stockholders (excluding NAI) can choose between $23 per share in cash or 1.5333 shares of New Paramount's Class B stock, while Class B stockholders face a similar binary choice of $15 per share or one Class B share. These premiums—48% for Class B and 28% for Class A—reflect a premium over recent stock prices, offering a tangible windfall for those who opt for cash. However, the proration clause for Class B shareholders (capped at $4.3 billion) introduces a layer of uncertainty, as oversubscription could dilute the value of the cash election for some.

The cash election, while generous, is a short-term salve for a deeper structural issue: the lack of voting rights for Class B shareholders. Even after the merger, these shareholders will retain no voting power in New Paramount, a reality that underscores the persistence of governance imbalances. The Skydance Investor Group, led by David Ellison and RedBird Capital, will control approximately 70% of the pro forma shares, ensuring that strategic decisions—such as capital allocation, executive compensation, and board composition—remain firmly in the hands of a concentrated bloc.

Governance Risks in a Post-Merger World

The merger's governance risks are rooted in Paramount's historical ownership structure. For years, the Redstone family's NAI controlled 77% of Class A shares, which carry 10 votes each, while Class B shares (held by the public) had no voting rights. This imbalance allowed Shari Redstone to dominate decision-making, even as the company's stock underperformed the S&P 500 by 55 percentage points since 2020. The Skydance merger does not fundamentally alter this dynamic; instead, it replaces one controlling shareholder with another.

The implications for minority stakeholders are stark. While the cash election provides liquidity, it does not address the lack of voting rights or the potential for value extraction in future transactions. For example, if Skydance or NAI (now owned by Skydance) seeks to spin off assets or pursue further mergers, minority shareholders will have no say in the process. This raises concerns about agency costs—the risk that controlling shareholders prioritize their own interests over those of the broader investor base.

Moreover, the merger's regulatory and legal uncertainties add another layer of risk. The Trump 60 Minutes lawsuit settlement, reported to be $16 million, has drawn scrutiny from Democratic lawmakers, who fear it could be used to curry favor with the FCC to secure merger approval. Such controversies highlight the vulnerability of corporate governance to external pressures, particularly in industries where regulatory approval is a prerequisite for strategic moves.

Lessons for Investors

For investors, the Paramount-Skydance merger serves as a cautionary tale about the limitations of cash elections in addressing governance flaws. While the immediate premiums are attractive, they should not obscure the long-term risks of a governance structure that marginalizes minority shareholders. Here are three key takeaways:

1. Scrutinize Voting Rights: Investors should assess whether a company's governance structure allows for meaningful shareholder participation. In Paramount's case, the absence of voting rights for Class B shareholders—even after the merger—means that minority stakeholders remain sidelined.

2. Evaluate Control Transitions: Mergers that transfer control from one concentrated bloc to another (e.g., NAI to Skydance) often fail to resolve underlying governance issues. Investors should look for structural reforms, such as declassified boards or proxy access, that enhance accountability.

3. Balance Short-Term Gains with Long-Term Risks: The cash election offers immediate value, but it does not guarantee long-term stability. Investors should weigh the benefits of liquidity against the potential for future value erosion due to governance missteps or regulatory challenges.

Conclusion

The Paramount-Skydance merger is a high-stakes experiment in corporate restructuring. While the cash election provides a welcome boost to public shareholders, it is a temporary fix for a systemic problem: the concentration of power in the hands of a few. For minority stakeholders, the deal underscores the need for vigilance in an environment where governance risks can overshadow financial rewards. As the media landscape continues to evolve, investors must demand more than one-time premiums—they must advocate for governance frameworks that align the interests of all stakeholders, not just those at the top.

In the end, the true test of this merger will not be the premiums paid today but the governance structures that endure tomorrow.