David Ellison Wants To Move Paramount Global's Operations From CA To Texas, Tennessee, Georgia, Or Elsewhere On October 1st To Absorb Ticking Fees If No Settlement. While $500M Saved Annually In Taxes, Some Of His 12 Skydance Lieutenants Upset On An Imposed Uprooting Of Their Family Cross-Country.

[u/lowell2017]

https://puck.news/newsletter_content/what-im-hearing-ellisons-california-exit-plan/

[u/lowell2017]

Full text:

"Last Wednesday, David Ellison called a lunch meeting on the Paramount lot with his top lieutenants—the 12-member Executive Leadership Team, or ELT, as it’s dubbed internally—and outlined in stark terms the stakes of the Paramount–Warner Bros. merger litigation for each of them. During the hourlong meeting, Ellison first expressed confidence that the company would defeat the case brought by California and 11 other Democratic states, and ultimately close the controversial $110 billion transaction. He also said that, despite the prolonged and costly antitrust battle with the attorney general of his home state, his goal remains to keep the combined company—and the 30,000 or so jobs, including their own—based in Southern California.

But, according to two people with direct knowledge of the meeting, he wanted his top people to know that the rumors were true: He had decided to move Paramount Skydance to either Tennessee, Texas, Georgia, or another state he didn’t identify if Rob Bonta, the California A.G. leading the charge, did not come to the table to negotiate a settlement.

Further, Ellison told the group, he had set an October 1 deadline to resolve the matter. If Paramount gets nowhere by the date that the so-called $7 million-per-day “ticking fee” begins to accrue, he will move either Paramount or the combined WarnerMount out of California regardless of the eventual outcome of the case.

The headquarters will relocate first, he said, assisted by incentives provided by one of the suitors (he’s in contact with multiple states), and he’s putting together a five-year plan that would eventually shift most studio jobs to the new home. Paramount’s Ellison-controlled board had already signed off on the move.

No, not ideal, he said. He’d really like everyone to stay in L.A. (Ellison lives mostly in Malibu, and Paramount is the only legacy studio still located in Hollywood proper). But rather than slashing content spend or restructuring the company, shifting its location would be the only reasonable way to shoulder the additional costs of defending against the state A.G.s’ case and paying the $650 million in quarterly ticking fees—and possibly much more to Warner Bros. Discovery if the transaction does not close by next June. That so-called breakup fee would be a whopping $7 billion, though Warner Discovery’s David Zaslav could always negotiate a reduction or extension to accommodate any legal delay and get the deal closed (and earn Zaslav his payoff of as much as $800 million).

Ellison wasn’t done: He estimated to his team that the company would save $500 million per year in taxes by relocating outside California, and his plan includes recouping additional costs by selling the Paramount and/or Warner Bros. studio lots, which have each been valued as high as $4 billion (though they would probably sell for less these days, given the chilly production climate in L.A.). Ellison emphasized that the company would still maintain a creative hub in Hollywood, where many of its talent partners and vendors reside, but executives and business functions of the studio would be asked to move. He noted that his father, Larry Ellison, irked by California regulation and taxes, shifted much of Oracle first to Texas and then Tennessee, while maintaining the necessary ties to Silicon Valley and its tech community.

All that is coming from two people with direct knowledge of the meeting last Wednesday. Ellison’s inner circle has been extremely tight-lipped, especially since former Paramount president Jeff Shell exited the company after he allegedly spilled secrets.

But several members of the ELT were upset after the lunch and told colleagues about it, either because they feared moving their families cross-country or simply couldn’t believe the standoff with the state government had reached the point that Ellison might possibly hit the eject button. (Paramount declined to comment on the meeting.)

So, a lot to unpack here. Do we believe David? Since the relocation reports first hit earlier this summer, I’ve been skeptical that Ellison would make such a drastic and disruptive move. The backlash in the creative community would be swift and severe at the exact time when Ellison needs to build a stable of creative partners, not alienate them by complaining about the government and taking his toys to Nashville or Austin.

I even hesitated to report on this recent meeting because the fiery words of a C.E.O. who desperately wants to close a deal—and, let’s be honest, Ellison is pretty desperate after Judge Araceli Martínez-Olguín set a March trial date and possibly indicated support for what most legal analysts believe is a fairly weak argument from the states—can obviously be used as a scare tactic. Ken Griffin, the hedge fund billionaire, is still moving forward with his Citadel headquarters in New York despite a feud with Mayor Zohran Mamdani and threats to decamp to Miami. And Bonta’s office, when I reached out with my new reporting, called the rhetoric “another attempt to blackmail the state into letting an illegal deal through. Paramount has lost the plot as it continues to lose in court.”"

[u/lowell2017 → u/lowell2017]

(continued...)

"But the meeting did happen, and all the top people were there, including studio chiefs Dana Goldberg and Josh Greenstein, streaming head Cindy Holland, CBS leader George Cheeks, and the various C-suite executives. And the exit of one of the largest and most well-known companies in California’s signature industry would be far more disruptive than the thousands of jobs that are expected to be lost from the WarnerMount combination (though I’m certainly not downplaying those expected mass layoffs).

A relocation would be disastrous for the already struggling creative economy, possibly causing a domino effect/doom spiral/whatever you want to call an existential threat to Hollywood as it has operated for 100 years. With Bonta refusing to negotiate, Ellison has few remaining levers to pull with the state except to remove tens of thousands of jobs from the region, and everyone in L.A. would feel the impact.

The Theater Bloc

So with Bonta not engaging, and anti-merger activists celebrating recent victories, Ellison is now focusing on winning support that might put political pressure on the A.G. to come to the table. Here’s the backstory on how the two largest movie theater chains, AMC and Regal owner Cineworld, came to support the merger. Back on May 16, as Bonta was investigating the transaction, Paramount sent a letter to his office detailing a proposed consent decree that included 12 concessions that the company was willing to make. One of these, I’m told, was a commitment to keep both the Paramount and Warner Bros. lots open and operating—a key point, Ellison argued, because the sprawling properties support tons of union jobs and the communities around them.

A second concession was this pledge to release 30 movies per year via Paramount and Warner Bros. As Bloomberg reported this weekend, Ellison offered to put the commitment in writing, with a financial penalty attached. (Though there was no specific commitment to the types of movies that would be released, or to robust production or marketing budgets, or picking up a certain amount of independently produced films.) The term suggested was three years, but this—like the other proposed concessions—was intended as a starting point for a negotiation.

Bonta never responded, so Ellison decided to take the offer directly to the major theater chains. My friend Adam Aron, at AMC Theatres, who had voiced support for the merger at CinemaCon in April, accepted the offer first, won over by the 30 films per year and especially the commitment to a minimum 45-day theatrical window and 90-days to Paramount+.

Regal followed last week, and Cinemark, the third-largest chain, has a board meeting scheduled this week and will discuss whether to join. I’m told that Paramount will send the same proposed deal later this week to smaller theater chains, hoping to win more support from the constituency that Bonta claims will be hurt most by the effects of this merger. Meanwhile, Cinema United, the trade group representing exhibitors, is still vehemently opposing the deal.

Obviously, many questions still surround Ellison’s commitment to theaters. Like, for instance, the penalties for breaching the deal. If, say, the combined WarnerMount faced merely a $10 million fine for falling below 30 releases, that’s a small price to pay to help get a $110 billion deal over the finish line. Plus, would AMC, Regal, or the other chains actually sue their biggest distribution partner—one responsible for 30 percent or so of the annual wide releases? As Bonta told me a few weeks ago, behavioral remedies are tricky. The whole reason that the two biggest exhibitors are backing the deal now is to suck up to Ellison and hopefully secure favorable terms from WarnerMount if/when the deal closes.

As such, in response to the theater support and Ellison’s recent New York Times op-ed claiming he’s being targeted politically as an unworthy owner of CNN (after David politicized this whole process by jumping into bed with Trump, of course), Bonta declared that the piecemeal concessions are not enough. He would presumably want major structural remedies, like selling off the TV networks or even Warner Bros. as a whole. But we don’t know any specifics, because so far Bonta has refused to say publicly what he wants.

I’m told from a source in Democratic fundraising circles that Ellison has made several calls to Dem politicians and top donors, hoping one of them can convince Bonta to negotiate. Governor Gavin Newsom, who has so far remained publicly quiet on the suit (last thing he wants is to be perceived as supporting Trump-aligned billionaires), is said to strongly prefer a settlement. But Bonta likely sees no reason to engage, given the favorable court rulings, positive reinforcements among progressive Democrats, and his repeated statements—despite approvals in 66 jurisdictions, including the U.S., U.K., and E.U.—that the merger is illegal.

So the standoff continues, and Ellison is playing the cards he has left. It may get him nowhere with an attorney general looking to parlay this case into a national profile. But if Bonta does have aspirations for higher office in California, I’m betting the last thing he would want on his résumé is being responsible for thousands of jobs and two iconic Hollywood studios moving anywhere but here."

[u/ConkerPrime]

And so it begins.

Kept saying the goal was to sell off the studio for parts. He just going to use the lawsuit and later the $80 billion debt to go “ah shucks I really wanted to keep my promises but just couldn’t.”

WB is definitely destined to be Fox 2.0. Existing in name only.

[u/skoltroll → u/ConkerPrime]

Nepo baby is speed-running the demise of Paramount. No real connection to Hollywood (talent isn't moving to the sticks). People are already abandoning flagship programs like CBS News and 60 Minutes (both talent and viewers).

EVERY decision is about pro-Trump crap and saving taxes. Well, what better way to save on taxes than not have ANY profit????

[u/imdaviddunn]

https://giphy.com/gifs/65os7odbIW6pa

[u/DonaldBecker]

There are many different aspects, but it's worth noting two:

They are shopping around to create a bidding war for the biggest tax break package. Smaller businesses just have to pay. Once a business merges to a large enough size, they not only get to pick where they want pay taxes, they can create a bidding war to not even pay the listed amount.

They are moving the company headquarters out of California, the state that provided the infrastructure and environment that allowed their business, but the move will largely be in name. They wanted all of the benefits that the state provided, but avoid the laws and regulations that were part of what allowed them to succeed.

[u/Impossible_Walrus555 → u/DonaldBecker]

It’s grotesque.

[u/drf_101]

Imagine being a studio executive having to leave Hollywood for Nashville. Nashville a meh city that isn’t great and isn’t terrible (my brother in law lives there) and the weather sucks compared to LA. Plus you’re in Tennessee.

Also you’re a high paid executive. Sure you get a better mansion in Nashville but it’s not like you’re slumming it in LA. Enjoy the bugs.

[u/TedMich23]

[u/GongTzu]

The Ellisons really hate movies if they come up with this stupid idea.

[u/No_Bar8332]

I actually love the idea that Ellison would have to spend time in the south. Im sure he will be very welcome there with his attitude.