As the exclusive period for discussing a merger between Paramount Global and David Ellison’s Skydance Media is coming to an end, the future of the company is uncertain.
There has been no official decision on extending the exclusive period between Skydance and Paramount, which is set to end on Friday night. A spokesperson for Paramount declined to comment. Representatives for Skydance did not immediately respond to TheWrap’s request for comment.
Paramount’s board now faces three potential options. It could continue negotiating with Skydance, a deal that has been unpopular with shareholders. It could let the exclusive deadline pass and consider a $26 billion all-cash joint bid by Sony and Apollo Global Management. Or it could operate independently under its new Office of the CEO after the recent departure of CEO Bob Bakish. all-cash joint bid by Sony and Apollo Global Management. Or it could go it alone under its new Office of the CEO after the departure last week of CEO Bob Bakish.
The difficult decision comes as Paramount shares have dropped by 36.8% in the last year. Shares of the company are up 4% during Friday’s trading session at $14.45 each, above the 52-week low of $10.12 reached last month. Paramount’s market capitalization is at $10.1 billion.
Under its two-step plan, Skydance would acquire Paramount through controlling shareholder Shari Redstone’s majority stake in National Amusements, which owns 77% of Paramount voting stock. The second step would see Skydance and Paramount merge to create a combined company valued at around $5 billion. Earlier this week, Skydance submitted a revised, improved offer — stating it would add a $3 billion cash injection and premium for non-voting class B shares — in an effort to address minority shareholders’ concerns about the bid favoring Redstone at the expense of others.
On Thursday, Sony and Apollo officially made a joint, non-binding $26 billion all-cash offer for the company. This proposal, which increased shares by 13%, would see Sony take a majority stake in the company with operational control, while the private equity firm would take a minority stake.
The competition puts Paramount’s special committee of independent directors in a challenging position. They have a legal responsibility to find the best value for shareholders and will likely need to consider Sony and Apollo’s bid before making a final decision.
“Under Delaware law, [the independent special committee] have to be proactive in obtaining the best possible price for the shareholders,” Corey Martin, chair and managing partner of Granderson Des Rochers, LLP’s entertainment finance practice, told TheWrap. “The Apollo-Sony bid, at least on its face, would seem to be far superior for the shareholders. And with this bid, those Revlon duties that attach to the Paramount’s board are definitely applicable.”
Redstone, who has indicated a preference for a deal that would keep the company’s assets intact rather than breaking them up, could potentially reject the Sony-Apollo offer. This could lead to a wave of shareholder lawsuits. However, the Sony-Apollo bid may face regulatory scrutiny.
"Given the difficulties with regulations caused by the consolidation of studios and TV stations, as well as foreign ownership, the process of getting approval would take at least 12 months and potentially even longer if there's a change in administration in November," said Lightshed Partners analyst Rich Greenfield in a statement on Friday. "The deal may be designed to get approval, but it's uncertain and will take a long time." blog post "The Skydance deal could be valued at $13 per Paramount share, while Apollo would be $19 per share, according to Citigroup analyst Jason Bazinet. However, he believes there's a 90% chance of the Skydance deal being approved, compared to a 10% chance of Apollo and Sony, due to NAI's control of voting shares."
However, Greenfield believes that it's most likely that Paramount will pursue its own path under the new management structure.
In this scenario, Paramount could concentrate on reorganizing its business and consider mergers and acquisitions later in the year or in 2025, especially when there's more political and regulatory clarity, Greenfield added. He also mentioned that National Amusements could potentially sell a minority stake later this year.
Paramount’s Office of the CEO, consisting of CBS CEO and president George Cheeks, Paramount Media Networks CEO and president Chris McCarthy, and Paramount Pictures and Nickelodeon CEO and president Brian Robbins, is working on developing a long-term strategic plan for the company.
Greenfield believes that Paramount should reduce its investment in Paramount+ and license its content to another company like Max, Peacock, or Hulu.
"We also believe that Paramount could pursue significant asset sales and shut down unprofitable assets that the previous management was reluctant to exit," he said. "If Paramount becomes involved in a lengthy M&A process without certainty of approval, they will have postponed necessary strategic moves and will be in a much worse financial situation in 12-18 months if the deal fails to go through. No break-up fee can make up for that."
While some companies like Netflix have achieved success with a co-CEO model, its overall success rate has been inconsistent.
"The number of companies that have co-CEOs, two CEOs, or a very strong executive president and a CEO in the past 20-30 years is less than 100 companies," said Stefano Bonini, an associate business professor at Stevens Institute of Technology. "Some companies have performed well, and others have performed poorly. It's never a good decision when it's made in a rush unless it's temporary." Bonini also points out that Paramount’s new executive trio “seems to be largely overlapping” in terms of their skills, which he warned could potentially increase the chance of conflicts and strategic disagreements in a company that is already facing challenges, including a declining linear business, unprofitable streaming business, and $14.6 billion in long-term debt. "If the Skydance deal falls through, an Apollo transaction seems like the next logical step," he added. "It wouldn’t be particularly attractive for Redstone, but I don’t see three CEOs effectively running a company after there has been extensive discussion about a merger."
The board’s special committee has a difficult decision to make: proceed with an unpopular Skydance sale, consider Sony and Apollo’s $26 billion offer, or operate independently
Bonini points out that Paramount’s new executive trio “seems to be largely overlapping” in terms of their skill sets, which he warned could potentially increase the chance of fights and strategic conflict in a company that is already facing challenges, including a declining linear business, unprofitable streaming business and $14.6 billion in long-term debt.
“If the Skydance deal doesn’t go through, an Apollo transaction seems like the next logical step,” he added. “It wouldn’t be particularly attractive for Redstone, but I don’t see three CEOs running a company effectively after there’s been talks and talks and talks of a merger.”
