A view of the Paramount Studios water tank as SAG-AFTRA members walk the picket line outside during the strike, in Los Angeles, California, USA, September 26, 2023.
Mario Anzuoni Reuters
National Entertainment stopped the merger discussion between Paramount Global and Skydance this week – throw into question what’s next for the legacy media giant during a turbulent period for the industry.
Paramount, like many of its peers, is struggling with how to make streaming a profitable business as it faces peak competition, a rapidly shrinking world of cable TV subscribers and a slump in the advertising market that primarily weighs on the package.
Now it’s up to three leaders at the helm of Paramount to determine the best course for the company.
Bob Bakish stepped down from the top job in April and was replaced by the so-called “Office of the CEO:” CBS CEO George Cheeks, Paramount Media Networks CEO Chris McCarthy and Paramount Pictures CEO Brian Robbins. The executives are trying to steer Paramount out of a difficult time while working within a structure that few companies have tried.
“It is very difficult for a trio of CEOs to work on a long-term basis. It is almost unheard of. How will they make decisions on allocating capital and strategic priorities?” said Jessica Reif-Ehrlich, analyst at BofA Securities.
On Wednesday, executives sent a memo to Paramount employees saying they would focus on plans to turn the company around after a proposed deal did not move forward.
“So, what does this mean for Paramount? While the Board will remain open to exploring strategic alternatives that create value for shareholders, we continue to focus on executing the strategic plan announced last week during the Annual Shareholders’ Meeting, which we believe will set the stage. for growth for Paramount,” the trio said in a memo obtained by CNBC on Wednesday.
No deal
After months of negotiations in the sale process that included various twists, National Amusements informed the special committee of Paramount and the buying consortium that included Skydance and the private equity firms RedBird Capital and KKR minutes before the vote that stopped the sale process.
The move comes more than a week after Skydance and Paramount agreed to the financial terms of a merger that would be worth $8 billion.
The deal is pending a sign-off from Redstone, which owns National Entertainment, the controlling shareholder of 77% of Paramount’s class A shares.
In a statement on Tuesday, National Entertainment said that “while agreeing to the economic terms offered by Skydance, there are other terms that cannot be agreed upon.” National Entertainment also expressed support for Paramount’s current leadership.
While people close to the deal gave conflicting reasons for why it was scrapped, people familiar with the matter said Redstone turned down the offer after Skydance lowered the amount of money it would have received with a revised offer in order to move some of it to. class B shareholders.
In the latest iteration of the deal, Redstone will receive $2 billion for National Entertainment and Skydance will buy approximately 50% of its class B shares at $15 each, or $4.5 billion, leaving shareholders in the new company.
In recent times, another potential bidder for National Entertainment has emerged, according to reports. Redstone plans to explore selling his controlling stake in Paramount Global without any transaction related to combining studio assets, as proposed by Skydance.
While Apollo Global Management and Sony have officially expressed interest in a “complete acquisition” of the company for $26 billion, Redstone is in favor of a deal that keeps Paramount whole, which is not the plan for the bidder, CNBC previously reported.
Path forward
The Paramount CEO’s office acknowledged that the company faces uncertainty after the deal fell apart.
“We understand that the past few months have not been easy as we manage change and speculation,” the trio of leaders said in a Wednesday memo to employees. “And, we should all expect some of this to continue as the media industry and our businesses continue to grow.”
Although the company met the financial terms of its proposed deal with Skydance, Paramount’s new leadership team outlined plans at a shareholder meeting last week if a deal does not happen.
Highlighted strategic priorities include exploring streaming joint venture opportunities with other media companies, eliminating $500 million in costs through measures like layoffs and divesting non-core assets.
The memo notes more will be discussed at a June 25 corporate town hall. Leaders are also expected to finalize the details of the plan during the August earnings call.
Executives set their priorities by focusing on reducing Paramount’s debt burden and returning the company to investment grade status after being downgraded earlier this year. Paramount has $14.6 billion in debt.
In a memo to employees on Wednesday, Paramount’s leadership team said it will focus on implementing this plan.
“The work has been done, because we are focusing on three pillars: Transforming our streaming strategy to accelerate the path to profitability; Aligning the organization and reducing non-content costs; Optimizing the mix of our assets, by eliminating some businesses to help pay off our debt,” he said. leader in the memo.
Redstone has supported the trio of CEOs since taking over in late April, and expressed that support before introducing them during a shareholder meeting presentation.
In Wednesday’s memo, leaders reiterated content and franchise growth while also focusing on cost reduction and debt reduction, the priorities executives outlined during the presentation.
But the unorthodox nature of the CEO’s office — which Redstone acknowledged during a shareholder call — industry analysts think the plan could be successful.
“The company needs to focus on some things, like improving the balance sheet to regain flexibility and focus on businesses that are really profitable. Also, maybe sell assets or change the mix of assets,” said Reif-Ehrlich. “But it’s a very difficult situation. Uncertainty is the worst thing.”
Whether this CEO makes this plan, or who takes over, he will have to face a variety of challenges, said Robert Fishman, an analyst at MoffettNathanson, in a research note.
Among them, Paramount’s earnings are driven by traditional TV networks, which are primarily general entertainment — perhaps the most challenging content in media, as Disney’s Bob Iger said last year. A weak advertising market could also weigh on the company in the coming months.