A group of New York City pension funds asked a judge in Delaware this week to issue an injunction that would pause the $8 billion Paramount-Skydance merger.
The litigation comes as investors are lining up in Delaware Chancery Court to challenge the deal on the grounds that it is excessively favorable to Shari Redstone, the controlling shareholder.
Because it owns CBS, Paramount Global also must win approval for the merger from the Federal Communications Commission. That has been called into doubt as the Trump administration’s FCC chairman investigates allegations that “60 Minutes” distorted an interview with Kamala Harris.
In hopes of expediting the merger, Paramount is also said to be considering settling a lawsuit filed by President Trump last year over the “60 Minutes” segment.
But well before Trump entered the fray last fall, the merger was drawing fire from minority shareholders. Paramount stockholder Scott Baker filed a $1.65 billion class action complaint last July, arguing that the deal benefits Redstone at the expense of other shareholders. The complaint noted that Redstone rejected a $26 billion offer from Sony and Apollo Global Management as she pursued the deal with Skydance, despite protests from some investors.
The class action has been on hold as the investors try to sort out who should take the lead. Meanwhile, other investors demanded Paramount’s books and records, the first step in an investigation that could lead to additional shareholder suits.
The state of Rhode Island, which manages its Employees’ Retirement System, filed one such action in Delaware Chancery Court in April, before the merger was even announced. But in late July, a magistrate judge recommended denying the demand, finding there was not enough evidence to substantiate an investigation.
Paramount argued that the complaint was based heavily on news articles, such as ones from the Wall Street Journal, the New York Times, Bloomberg and the Financial Times, that in turn relied on anonymous sources — and that the allegation was therefore suspect.
After several months of further litigation, Vice Chancellor J. Travis Laster ruled in favor of Rhode Island last week, rejecting the magistrate’s recommendation. Laster found that there was nothing wrong with an investor relying on news articles that attribute anonymous sources, particularly when the articles come from reputable publications.
“The articles’ use of anonymous sources does not undermine their persuasiveness,” he wrote.
Laster found a “credible basis to infer potential corporate wrongdoing,” and ordered Paramount to turn over books and records to the state.
Just a few days later, the New York City Employee Retirement System and four other city pension funds filed a lawsuit under seal in the Delaware Chancery Court alleging a breach of fiduciary duty. According to a Paramount Global securities filing, the claim asserts an “alleged failure to sufficiently consider an alternate offer that the plaintiffs claim is superior to the Transactions.”
The following day, the funds filed a short motion for a preliminary injunction, which, if granted, would block the transaction until the lawsuit can be resolved.
Paramount has warned its investors that an injunction could torpedo the deal.
“The outcome of any litigation is uncertain. Such litigation, if not resolved, could prevent or delay consummation of the Transactions and result in substantial costs to Paramount, including any costs associated with the indemnification of directors and officers,” the company said in a securities filing on Thursday. “If a plaintiff were to seek and obtain an injunction prohibiting the consummation of the Transactions on the agreed-upon terms, then such injunction may prevent the Transactions from being consummated, or from being consummated within the expected time frame.”
The company stated it has also received demand letters from other stockholders who also allege similar breaches of fiduciary duty.
