Paramount’s proposed merger with Skydance has been the most tumultuous media deal in years. Now it has taken a new turn after the exclusivity period for negotiations expired without a deal in hand.
A month ago, a special committee of Paramount’s board of directors agreed to enter into exclusive talks with Skydance (a Hollywood studio run by tech scion David Ellison) even as private equity giant Apollo Global Management approached with an offer for 26 billion dollars. Paramount shareholders complained that granting exclusivity was a mistake and that the company should have committed to Apollo.
This week, the special committee told Skydance it would let the exclusivity period lapse. The end of exclusivity does not end with the agreement with Skydance. But it does allow Paramount to begin negotiations with Apollo and Sony Pictures Entertainment, which joined Apollo’s bid.
The so-far unsuccessful negotiations raise a question that negotiators have long debated: Why do companies like Paramount agree to exclusivity in the first place?
Buyers tend to prefer exclusivity more than sellers. Exclusivity is a signal from the seller that they are committed to closing a deal and not simply using an offer to get higher offers.
Sellers generally prefer to negotiate without exclusivity because that limits their ability to shop around for a higher price. And because they have already indicated to the buyer that they are willing to make a deal, they have weakened their bargaining power.
Many deals with large public companies are negotiated on a non-exclusive basis, as shareholders expect the company to get the highest possible price.
Exclusivity can help sellers with thorny deals. In addition to helping cajole a potential buyer into spending millions on due diligence, committing to deal with only one party can obscure limited interest.
“An auction is a very good way to sell something when there are multiple bidders,” Edward Rock, a corporate law professor at New York University, told DealBook. “It’s a really bad way to sell something if you announce an auction and only one person shows up, because now everyone knows there’s no one else interested in buying the company.”
For Paramount, other factors were most likely at play. Shari Redstone, the company’s board chairwoman, almost certainly prefers a deal with Skydance, which would allow her to sell her shares at a control premium. It’s unclear whether Paramount’s cash offer from Sony and Apollo would be as lucrative for it.
Redstone appointed the special committee to lead Paramount’s negotiations to avoid conflicts of interest. But that committee is aware that Skydance’s bid for National Amusements, Paramount’s parent company, was supported by Redstone, the company’s most influential shareholder. That was likely a factor in their decision to move forward with exclusive talks, said Steven Davidoff Solomon, a professor at the University of California, Berkeley, School of Law.
Solomon said the special committee could have viewed Skydance’s offer as the only plausible deal on the table. “Let’s see if we can get it done,” Solomon said, expressing his interpretation of the committee’s approach. “If we can not “Do it and then 30 days later we can do another deal.”
But time is money. The much-publicized 30-day deadline put a spotlight on the agreement, adding an unwanted level of dramatic tension as the two sides sought to reach a complicated deal. The 30 days also coincided with the departure of Paramount CEO Bob Bakish, leaving the company in a more unstable position and potentially weakening its bargaining power.
If Paramount begins talks with Sony and Apollo, it’s not clear they will result in a deal. It is not clear if there will now be any agreement. But in any case, Paramount’s special committee will have a lot to talk about when it meets today to discuss its options. —Lauren Hirsch
IN CASE YOU HAVE MISSED IT
The United States added fewer jobs than expected last month. Nonfarm payrolls released this week showed 175,000 jobs were created, fewer than expected, and wage growth slowed. The data capped a week of new economic indicators and the Federal Reserve’s decision to leave rates unchanged until it is confident inflation is closer to its 2 percent target.
The Securities and Exchange Commission charged Trump Media’s auditor with fraud. The regulator accused BF Borgers of breaching accounting standards and the company agreed to stop filing audited returns on behalf of clients. Trump Media has been a BF Borgers client since 2022.
The Biden administration recommended reclassifying marijuana. Shares of cannabis companies soared on news that the Department of Justice recommended changing the drug’s classification from Schedule I (the same level as heroin) to Schedule III (which would put it on par with Tylenol and codeine). The move could improve President Biden’s appeal among younger voters.
Another cryptocurrency tycoon was sentenced to prison. Changpeng Zhao, founder of Binance and one of the biggest names in the industry, received a four-month sentence for money laundering. Zhao, who pleaded guilty last year, received less than the three-year sentence prosecutors had recommended. With an estimated fortune of $33 billion, he could become the richest federal prisoner in US history.
Munger’s best comments
Much of Berkshire Hathaway’s annual meeting in Omaha today will resemble meetings of years past: the tens of thousands of attendees from around the world; dozens of representatives from the conglomerate’s portfolio companies, from Fruit of the Loom to BNSF railroad; and Warren Buffett himself available to answer shareholders’ questions.
But this year Buffett will be without his longtime right-hand man, Charlie Munger, who died in November at age 99. For a long time, the centerpiece of the shareholder conclave was an hour-long question-and-answer session involving the two men, who perfected a buddy comedy act: Buffett first responded with cheerful optimism, and then Munger he continued with biting cynicism. (This year, Buffett will be joined by his top lieutenants, Greg Abel and Ajit Jain.)
Here are some of the best comments Munger dropped at Berkshire’s annual meetings over the years:
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“If you mix the mathematics of the chain letter or the Ponzi scheme with some legitimate development like the development of the Internet, you are mixing something that is miserable or irrational or that has bad consequences with something that has very good consequences. But you know, if you mix raisins with excrement, they’re still excrement.” (2000)
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“What I needed to get ahead was to compete against idiots. And fortunately there is a great offer.” (2014)
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“I have avoided compensation advisors my entire life. “I can barely find words to express my contempt.” (2017)
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“A man who jumps off a building is fine until he falls to the ground.” (2023, on government deficits)
On our radar: the art of AI that gives humans some hope
Since ChatGPT launched in 2022, companies and governments have been trying to figure out how artificial intelligence will work alongside humans. Can technology take over entire jobs? Are you a collaborator? And what functions could AI augment rather than replace?
Looking for clues about the future, DealBook visited two art galleries in London featuring works created by traditional artists experimenting with AI.
In “AI & Technology Influence on Contemporary Art,” an exhibition curated by Virginia Damtsa and on view through September 10 at Gabriel Scott, three painters have used technology to test the limits of human creativity, exploring whether AI is a liberating tool or an existential risk for creativity. Jonathan Yeo, whose portrait of King Charles III, the first since his coronation, will be unveiled this month, asked an AI to create a series of self-portraits. Von Wolfe, an oil painter, built his own AI to create an image of a digital sculpture displayed on a light box. And Henry Hudson asked an AI to create an image and then used oil paints to paint a version of it.
“Post-Photography: The Uncanny Valley,” an exhibition at the Palmer Gallery through May 17, also features the work of three artists. Boris Eldagsen of Germany won a Sony World Photographer award last year, and turned it down, after revealing that he had used AI to create his work, in part to start a discussion about technology and art. The image, “The Electrician,” and other works by Eldagsen are displayed alongside images by Ben Millar Cole, a British photographer, and Nouf Aljowaysir, a Saudi-born artist. It would be impossible for most viewers to know that the images were generated using tools like DALL-E, Midjourney, and Stable Diffusion.
The artists created the works using AI as a tool, as if it were a paintbrush or a computer. For workers trying to understand how their own jobs will evolve, that could provide some hope that humans will have a role to play for a little while longer.
Thank you for reading! See you on Monday.
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