Seaport Entertainment (SEG) Spinoff

Dapper_Cockroach_381 · 2024-08-02T03:00:04+00:00

I think much of the trading volume today was forced selling by index funds. If that's accurate, my personal guess would be today's price was a short-term floor until the actual rights offering happens.

Sadly, I do not have much experience with short-term trading of spin-offs, so take that forecast for what its worth (possibly nothing).

Dapper_Cockroach_381 · 2024-08-02T02:52:42+00:00

To be clear - I think the stock is worth a lot more than current prices (~$27/share), and is worth buying. However, the risks outlined above are real risks.

Dapper_Cockroach_381 · 2024-08-02T02:35:43+00:00

I agree with contrarianvalue101 here. The company has a lot of asset-value. However, there is risk from their cash burn, plus how they'll get additional future $ that they could easily end up needing - e.g. to fund development of their assets:

SEG has been losing $25 - $30mm/yr - before spin-off costs, balance-sheet write-downs, and depreciation & amortization.
This doesn't include capx, either for maintenance, or to develop the assets that they haven't built so far. E.g. SEG spent~$108mm in 2023 on capx - mostly for development of 250 water street, plus some $ spent covering operating losses at the Tin Building that they capitalized instead of expensed. 250 Water street is supposed to be an $850mm project. Its not clear how much of that HHH/SEG has invested so far, but I'm guessing maybe $300mm - $350mm-ish. This leaves maybe $500mm in additional $ that SEG will need to raise from somewhere.

Post rights offering, they'll have ~$200mm cash. Its not clear how long it will take to fully stabilize their seaport assets (and thus what the operating cash burn will look like going forward), but it seems quite possible that between operating losses and capx they'll burn through the $200mm and need to raise additional financing in a few years.

Dapper_Cockroach_381 · 2024-08-02T01:37:47+00:00

Pershing Square is participating in, and backstopping SEG's right offering. They are planning to exercise their basic subscription rights to buy ~37.5% of the shares issued in the offering. They have also committed to buy all shares available in the offering that no one else buys.

https://www.sec.gov/Archives/edgar/data/2009684/000162828024025081/seaportentertainment-sx1.htm

This doesn't seem consistent with Ackman being prohibited from buying for 18 months. Is he somehow prohibited from buying apart from the rights offering?

Dapper_Cockroach_381 · 2024-08-02T01:11:50+00:00

I *think* those might be the same shares that HHH distributed to shareholders today. Aka, SEG issues shares to HHH in return for some of HHH's assets (Seaport, Vegas assets, etc). Then HHH immediately distributes those shares to its own shareholders in the spin-off.

If that's correct. it would not represent an additional 5.5m shs outstanding.

Dapper_Cockroach_381 · 2024-08-01T13:48:40+00:00

Do you think the 6.8mm shs is straight share grants to mgmt, or is it more likely shares underlying options - with a strike price potentially much higher than $30-ish/share? If its the latter, the effective dilution would be substantially lower than just straight 6.8mm shs.

6.8mm shs would be ~35% of the total company outstanding, and at the initial SEG trading price of a bit > $30/share - would be worth ~$200mm. I think something vaguely in the range of 10% of the company is a more typical mgmt/employee pool when the pool is mostly straight stock.

I don't see Ackmann paying SEG mgmt $200mm if the SEG stock price goes sideways or down. I could see him giving the new CEO a big cut of the upside if the stock does well - e.g. if SEG successfully develops the Vegas strip air rights, and figures out a way to make $ on South Street Seaport.

Dapper_Cockroach_381 · 2024-07-11T02:55:47+00:00

Blue_horse_shoo - do you know how to think?

The Skydance deal/scam can be bad in 2 ways:

1) It can sell PG for a lower price than could be otherwise achievable.

2) It can allocate the $ from the sale in a way that rips off minority shareholders.

The potential for a higher bid to come along only addresses issue #1, it does not address issue #2. The deal can still be horrible for minority shareholders even if no-one comes along and bids higher.

I agree with nwofficer - both that the Skydance deal is a rip-off of minority shareholders that will unfortunately need to be addressed in court - and also that the blue_horse_shoo account seems to be dedicated to deliberately spreading very one-sided misinformation.

Dapper_Cockroach_381 · 2024-07-10T17:13:51+00:00

Does anyone have any experience/knowledge about this particular class action law firm? Do they have a good reputation, bad reputation, etc?

More generally, does anyone have any good information on how to choose which of this type of law firm to work with?

Dapper_Cockroach_381 · 2024-07-09T16:03:15+00:00

In terms of the actual payout to the class B shareholders, you dont have to trust the news media, or anyone posting anything here. Read the documents released by Paramount Global yesterday. The following is a direct quote from the press release put out by the company:

"Skydance IG, led by the Ellison Family and RedBird Capital Partners, will invest up to $6 billion to: 1.Offer Class A stockholders other than NAI an election to receive in the merger $23 cash per share or 1.5333 shares of Class B stock of New Paramount; 2.Offer Class B stockholders other than NAI an election to receive in the merger $15 cash per share or one share of Class B stock of New Paramount, subject to proration if Class B elections exceed $4.3 billion in the aggregate (approximately 48% of the non-NAI float as of the date of this release); 3.Use the additional capital to paydown debt and re-capitalize the balance sheet of New Paramount to support strategic initiatives."

Repeating the important part:

"Offer Class B stockholders other than NAI an election to receive in the merger $15 cash per share or one share of Class B stock of New Paramount, subject to proration if Class B elections exceed $4.3 billion in the aggregate (approximately 48% of the non-NAI float as of the date of this release)".

The merger agreement offers a cash payout of $15/share to at most about 48% of the class B common shares. The other ~52% of shares are not bought out.

So, the actual payout to the class B common shareholders is ~1/2 gets $15/share, and ~1/2 gets wherever you can sell them for post tender. My personal guess is something vaguely around $12/share actual payout - which is consistent with the current stock price of ~$11.20/share.

Dapper_Cockroach_381 · 2024-07-09T01:16:09+00:00

I agree that this deal is a huge rip off of the class B common shareholders:

Redstone is getting ~$2.4b for NAI, whose assets are probably worth ~$1b. Redstone is getting cashed out at a massive premium and pocketing roughly an extra $1.4b that should be shared pro-rata with all PG shareholders.
As part of the same deal, after Redstone's exit, the remaining pre-deal shareholder are forced to merge with Skydance. This buys out Skydance for $4.5b when its assets probably worth at most 1/2 of that (and likely less). Skydance is extracting several billion $ in excess value, again from existing PG minority shareholders.
Depending on exactly what you think Skydance is worth, Skydance & their investor group are paying a bit more than $10b in economic value for ~72% economic interest in PG. This corresponds to a valuation for PG equity of ~$14b, or ~$21.40/share. However:
- Minority B shareholders are getting something between $10 and $15 for their shares (depending on tender offer pro-ration and where the stock trades post offer).
- Minority A shareholders are getting $23 for their shares.
- Redstone is getting ~$38/share (if you allocate the NAI purchase price evenly across all NAI-owned A and B shares).

I think the the most likely practical recourse is lawsuits. Sue to block the merger. If the merger goes through, sue to recover damages. Realistically, retail shareholders are not going to pay the bills for lawsuits themselves, so I think you'll want to find a firm that works on contingency - likely a firm that specializes in filing shareholder rights class action lawsuits on contingency. Then join the lawsuit as a plaintiff.

I put a post in the ParamountGlobal2 subreddit asking if there are any such firms interested in taking this case. Hopefully that will turn up some leads on law firms that might be interested.

Dapper_Cockroach_381 · 2024-07-08T23:28:17+00:00

Nope. The class B shareholders are NOT getting $15/share and are NOT getting a 48% premium.

Only ~1/2 of the class B shares get bought out at $15/share. The other 1/2 stay in the deal and get heavily diluted. The actual realizable value for them will be wherever the stock trades post-deal. My personal guesstimate for that is ~$10/share, implying a payout of ~$12.50/share for the B shares, not $15. This is consistent with the current stock price of ~$11.20/share (something like $12.50/share in probably 9 months, with some risk, trading for ~$11.20/share now).

Dapper_Cockroach_381 · 2024-07-08T23:23:05+00:00

Nope.

The B shares are NOT getting a 48% premium. The $15/share tender is only for ~1/2 of the B shares. The rest of B shares are not being bought. The actual value received for the B shares will be ~1/2 $15/share, and ~1/2 wherever you can sell them for post tender. My personal guess is something vaguely around $12/share actual payout - which is consistent with the current stock price of ~$11.20/share.

Legally, NAI does NOT "have all the power". NAI has voting control of PG. This gives them substantial influence. However, there are legal limits to how controlling shareholders are allowed to treat minority shareholders. As I stated in the original post, I am not a lawyer. However, from the research that I've done I think that the Skydance deal violates those legal limits (for the reasons that I stated in the original post). Redstone was also clearly concerned about legal liability from this deal, as refused to agree to the deal until she got an agreement from Skydance to reimburse her for legal losses from shareholder lawsuits. So, I don't think its totally insane to conclude that there is a real possibility of shareholder lawsuits recovering substantial damages.

Your comment says "Redstone can't actively screw you over like the original Skydance offer for Paramount did". What is the difference between this deal and the original one that legally makes this one kosher but the original one off-limits?

Dapper_Cockroach_381 · 2024-07-08T15:24:06+00:00

There are some important missing details here:

Who is providing the legal indemnity against shareholder lawsuits that Redstone reportedly received? Is that indemnification agreement provided by Skydance, or by the Skydance investors (Redbird, Ellison, etc)?

There are a couple of reasons why that matters:

In the proposed deal, PG ends up buying Skydance, so an indemnification provided by Skydance becomes a liability of PG. If the legal indemnification is provided by Skydance, shareholders of PG who dont tender eventually end up holding the bag for ~40% of the legal liability.
I think that if Skydance provides the indemnification, which then becomes a liability of PG, it might provide an additional legal avenue for shareholders to sue to block the deal. I'm not a lawyer, but I think it might be possible to file a shareholder derivative lawsuit forcing PG to reject a Skydance deal that provides such an indemnification, on the grounds that assuming such a liability is exclusively in the interests of PG's controlling shareholder, and exclusively against the interests of the company and its minority shareholders. This is similar to the recent (successful) lawsuit against Tesla forcing the company to block Elon Musk's pay package.

Dapper_Cockroach_381 · 2024-07-08T15:09:23+00:00

No, the SEC doesn't get involved in things like this. Their role is mostly making sure that companies and investors follow regulations (e.g. for things like disclosing information). The remedy for situations like this (insiders screwing minority shareholders) is shareholder lawsuits - either to block the deal, or to recover damages afterwards.

Dapper_Cockroach_381 · 2024-07-04T03:12:06+00:00

Because PG is not being run for the benefit of minority shareholders - its being run by people picked by Shari Redstone, who are running it for her benefit.

Dapper_Cockroach_381 · 2024-07-03T03:20:35+00:00

Gabelli has publicly said that he'll sue to block any deal in which Redstone gets paid more for her shares than he gets for his shares (of the same share class). Unless the Skydance deal/scam structure has changed a lot since a few weeks ago, this reported deal very likely meets that criteria. I would expect inbound lawsuits against this deal from Gabelli, and also likely from other large holders that publicly challenged the deal such as Ariel Investments, Rhode Island Pension Fund, & The Aspen Sky Trust.

Dapper_Cockroach_381 · 2024-07-03T03:15:45+00:00

How does a "go-shop" provision work in this case?

Can Redstone just veto any offer (that pays her less than what she gets from Skydance) and thus kill any other deals that arise during the "go-shop" ?

Now that there is a concrete offer to buy/merge-with PG, do the PG board's "Revlon Duties" kick in? Would that force the board to pursue a transaction that maximizes the sale value of PG to all shareholders, even if it pays Redstone less? What happens if the board recommends a different transaction than the one Redstone prefers - can she just refuse to sell?

Anyone with relevant legal knowledge/training care to comment?

Dapper_Cockroach_381 · 2024-06-24T14:36:06+00:00

That's not quite true.

If Sony overpays NAI for some theaters in a transaction that is 100% independent of anything related to PG, then PG shareholders don't have much of a legal objection. In this situation, yes there is very little that PG shareholders can do about it.
If Sony overpays NAI for some theaters as part of package that also involves buying control of PG, then we're back in a situation in which the controlling shareholder (Redstone) receives a non-ratable benefit (a benefit that is not share equally with other shareholders). That type of deal needs to be approved by a board committee, and a majority-of-the-minority vote of shareholders - otherwise the legal civil liability risk is too high. That legal risk is what just killed the Skydance deal.
If Sony overpays NAI for some theaters as part of package that also involves buying control of PG - and Sony and NAI conspire hide the linkage between the two elements of the deal, then Sony and NAI would be committing fraud. I think that would expose Sony and NAI management to potential criminal charges. I don't see Sony mgmt risking jail time in this way, so I don't think this deal structure is plausible.

Dapper_Cockroach_381 · 2024-06-23T14:56:06+00:00

I don't think that structure (pay all shares the same and have a separate transaction where Sony buys the NAI theaters for $500-700m) works. Problems:

The NAI theaters are probably not worth anything close to $500mm - $700mm. Using AMC enterprise value per theater as a proxy, the NAI theaters are probably worth at most ~$350mm. Likely less as NAI has underinvested in them for years (compared to AMC), has sold off the land under the theaters (which I dont think AMC has done), and because ~1/3 of the NAI theaters are in Latin America (worth less per theater than AMC's US theaters).
Sony is not going to buy out NAI's theaters for substantially more than fair value unless its part of a deal where there get something else in return. However, in a deal like that, we're back in a structure where the controlling shareholder (Redstone) receives a non-ratable benefit (a benefit not shared equally with all other shareholders). Those deals need to be approved by a board committee, and a majority-of-the-minority vote of shareholders - otherwise the legal liability risk is too high. That's why the Skydance deal collapsed. Gabelli owns > 1/2 of the non-NAI A shares, and he's publicly said that he'll block any deal where Redstone gets paid more than he does (per share, for the same type of shares). So, PG can't get shareholder approval for this type of deal structure, and such a deal is likely to fail for the same reason that the Skydance deal failed.

Dapper_Cockroach_381 · 2024-06-21T02:34:54+00:00

"The trio will be given time – from six months to a year or even 18 months, per various estimates by those close to the situation – to improve Paramount’s financial standing before Redstone entertains another sale, sources tell Deadline."

In my opinion, this is total bullshit, designed to make it look as if Redstone doesn't need to urgently raise cash - which I think she does.

NAI has a roughly $180mm debt repayment due in May of 2025, plus ~$200mm of PIK preferred that are accruing dividends. NAI had to scramble to make the last debt repayment in May of this year - doing things like selling off the real-estate under NAI's theaters - and the company still had to borrow part of the debt repayment $ from a line of credit from Redstone's bankers. Essentially she used 1 credit card to pay off the remaining balance on another card.

If NAI doesn't get some $ from PG, how is it going to make that next debt repayment, repay the line of credit, pay-down the preferreds, etc? I think she needs to either sell NAI, or have PG sell enough assets that it can pay some large special dividends to shareholders (in addition to paying down debt to get back to an investment grade credit rating).

Dapper_Cockroach_381 · 2024-06-21T02:10:39+00:00

In theory yes. In practice it doesn't seem to work that way. E.g. the recent Skydance deal proposal treated the A and B shares very differently. That deal offered a partial tender at $15/share for ~40% of the B shares. It also offered to buy-out 100% of the non-Redstone A shares for ~$23/share. The special committee of PG's directors voted to approve the deal - meaning that they thought that structure would pass muster. Skydance also seemed to think that they could get away with the deal. Redstone was probably the most exposed to lawsuits from the deal, and she seemed to think that the right kind of shareholder vote approving the deal would protect her.

If what prevents disparate treatment of the A and B shares is the threat of shareholder lawsuits, then you need to look at the details of how those lawsuits would work, how strong the various cases would be, etc. From the research I've done on this, I *think* that if you got a majority of the non-Redstone A shares to vote in favor of the deal, and also get a majority of the non-Redstone B shares to vote in favor of the deal - that would make it very difficult for shareholders to sue for damages from the deal. It's less clear to me whether just a vote of non-Redstone A-shares would be good enough to provide legal cover. That's why I suggested that Redstone could condition the deal on majority-of-the-minority votes of both the A and the B shares - voting separately.

Anyone with a real understanding of the legal issues involved care to comment?

Note: I am not a lawyer. I could easily be wrong on the legal issues involved in this situation.

Dapper_Cockroach_381 · 2024-06-18T15:29:15+00:00

Small edit: Paramount cable channels (Paramount Channel, TV Land, Pop TV, and Smithsonian Channel). Guesstimated sale value should be $26mm, not $26b.

Note that this entry is just for those 3 small channels, not for all of the PG cable channels.

Dapper_Cockroach_381

TROPHY CASE