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Paramount must hand over internal board-level communications related to Shari Redstone’s firing of three members of the special committee that precipitated the studio’s reaching an agreement with Skydance, a court has ruled.
Judge Christian Wright wrote in the ruling that there was “a credible basis for investigating mismanagement or wrongdoing.” “Was Redstone simply looking to minimize conflict while the special committee did its work? Or did Redstone act because these directors were an obstacle to a particular deal she wanted to see happen,” he added.
The ruling represents a win for one of several groups of investors who suspect the deal unfairly benefited Redstone at their expense. They pursue what’s called a books and records request, which typically precedes lawsuits for breach of fiduciary duties.
Investors, including the Metropolitan Water Reclamation District Retirement Fund, believe Redstone orchestrated the sale by exerting improper influence on the special takeover committee’s negotiations in order to block the sale of Paramount in favor of selling only National Amusements, the entity through which it controlled the studio. The case concerns the production of informal board materials relating to the departure of three members of the special committee during a sensitive period of negotiations, shortly after a deal was reached with Skydance.
Redstone’s control over Paramount’s fate lay in the company’s unconventional ownership structure. National Amusements owns its share of Paramount with 77 percent preferred voting stock but approximately five percent common stock. The sale took place upon completion of the merger between Paramount and National Amusements. Since Redstone would have been paid to sell the entire holding company, this created a potential conflict of interest that undermined its motivation to find a better deal than the one offered by Skydance.
“This is a standard procedure for examining the books and records to obtain documentation about events leading up to the WBD deal,” Paramount said in a statement.
In the order, the court held that there was reason to suspect that Redstone interfered in the bidding process. He points to other issues related to books and records requests made by billionaire money manager Mario Gabelli, the largest holder of non-voting stock, and the Rhode Island Employees’ Retirement System.
A judge in Gabelli’s motion found that Redstone “may have had motive to direct the sale of NAI and may have done so.” These motivations lie in Skydance’s purchase of National Amusements as well as its acquisition of Paramount and its agreement to indemnify Redstone from liability arising from the merger.
According to Friday’s ruling, there is evidence to suggest that Redstone scrapped proposals it did not like or switched bidders to a more favorable deal structure that provided it with more benefits. Exhibit A: Redstone essentially had veto power over any potential acquisition even though it was not a member of the special committee. Her preferences were taken into account and influenced the evaluation of the committee, which she was told had the authority to reject submissions, according to the order.
As part of the deal, Skydance reportedly awarded Redstone “additional payments amounting to hundreds of millions of dollars.” New York Times. In the article, she admitted to forcing the special committee members out of Paramount, explaining that some “were very cautious about allowing potential bidders access to Paramount’s books” and “very concerned about being sued.”
Under the order, Paramount must turn over unofficial board materials, which can include emails and texts between company directors. The investors’ offer for officer-level materials was rejected.
The evidence already handed over “paints an inaccurate picture of the three directors’ exit from the Special Committee and Redstone’s role in it, thus failing to provide accurate details of a key event.”
