In a surprising turn of events, investor Mario Gabelli's legal threat has played a significant role in the collapse of Shari Redstone's ambitious plan to merge Paramount Global with its production partner Skydance Media. According to sources familiar with the matter, Redstone withdrew the deal moments before a crucial vote by a Paramount special committee, anticipating a potential lawsuit from Gabelli worth over $100 million.

Despite Redstone not being involved in recent discussions with Gabelli, the eminent investor's lawsuit posed a major risk to the merger. Other Paramount shareholders had also criticized Redstone for seeking a premium for her shares compared to other investors. Redstone's representative did not immediately respond to a request for comment.

Gabelli, an influential shareholder in Paramount, declined to disclose specific details regarding the impending litigation but did not deny the possibility. Known for his shrewd media investments, Gabelli expressed his intent to approach the situation cautiously and engage an attorney to examine all aspects closely.

At present, Redstone, daughter of the late media mogul Sumner Redstone, wields control over Paramount through her 77% stake in National Amusements. Gabelli, on the other hand, owns more than half of the remaining voting shares, amounting to 54%. Sources indicate that negotiations between Skydance and National Amusements hit a snag due to indemnity issues, specifically regarding potential litigation if Redstone chose not to seek shareholder approval for the deal.

Insiders suggest that Gabelli's legal team focused on National Amusements, leaving Redstone liable for the majority of potential legal consequences. On Tuesday, Redstone's lawyer reportedly informed the Paramount special committee via email that no agreement could be reached on "noneconomic terms," with legal liabilities surrounding the shareholder vote emerging as a major concern.

Industry analysts consider Gabelli an activist investor with a penchant for litigation. In a previous court battle, Gabelli and other shareholders successfully secured a $122.5 million settlement over Viacom's merger with CBS. Gabelli claimed that Redstone and the Viacom special committee breached their fiduciary duties by approving the deal without shareholder consent. Sources note that Gabelli perceives the Skydance deal as even more unfavorable, given Redstone's desire for a substantial premium on her shares.

While Redstone feared the potential consequences of Gabelli's opposition, it should be noted that Gabelli's influence would have been curtailed in a consolidated shareholder vote on a Skydance merger. Nonetheless, reports now suggest that Redstone is exploring an alternative option by considering the sale of National Amusements to potential buyers like Edgar Bronfman Jr., rather than relinquishing all control of Paramount.

However, if National Amusements were to be sold, potential objections from shareholders might arise if a buyer initiated changes at Paramount Global, invoking concerns over change of control provisions. Gabelli indicated that if Redstone pursued a sale, there would be a six-month window for scrutiny by the FCC to determine whether it qualifies as a change of control.

In a previous interview, Gabelli expressed his preference for no sale, despite concerns surrounding Paramount's substantial debt, declining movie theater attendance, and cord cutting in the cable TV industry. He remains optimistic about the prospects of the streaming business, including Paramount+, projecting its value to surge from $13 billion this year to $19 billion in 2027. Moreover, Gabelli predicts substantial growth in the film business, with its value more than doubling from $830 million to $1.7 billion in the next three years.

Gabelli emphasized his long-term approach as a shareholder, stating that he and his team view Paramount from a marathon runner's perspective. The ongoing saga surrounding Paramount Global's future continues to captivate market observers and industry insiders as the legal battle between Gabelli and Redstone unfolds.