The future of Paramount Global (PARA) is hanging in the balance after Shari Redstone, who controls Paramount through her family’s parent company National Amusements (NAI), ended merger talks with Skydance Media.
“I was shocked,” J. Christopher Hamilton, a former entertainment industry executive and professor at Syracuse University, told Yahoo Finance. “The deal seems a long way down the road.”
Hamilton wasn’t the only one surprised by the decision. An independent special committee of Paramount’s board recently recommended the economics of the Skydance deal after months of back-and-forth — and was even slated to vote on the merger before Redstone’s reversal.
Investors also took note, with Paramount shares falling about 8% after the decision became public.
“Immediately, we heard industry executives and investors call him crazy and many other unspeakables for not ‘taking money’ from Skydance,” LightShed Partners Rich Greenfield wrote on Wednesday.
So why did Redstone leave — and what does the decision mean for the company he controls?
“Ultimately, we believe the legal risks of the proposed Skydance transaction prove to be far too high relative to the National Entertainment alternative,” wrote Greenfield, noting the Skydance transaction was “good” for Redstone and NAI but “bad” for Paramount shareholders in general.
Skydance, which previously partnered with Paramount on the production of popular film franchises including “Mission Impossible,” “Top Gun: Maverick,” and “Transformers,” reportedly revised its offer several times after nonvoting shareholders expressed concerns about the terms. early discussion, which will give Redstone $ 2 billion in cash as the first step in the transaction.
But critics maintain the offer still unfairly benefits Redstone while diluting the holdings of public stakeholders. The threat of litigation arose as a result.
Hamilton agreed that the threat is a major overhang for the deal, especially since Redstone may have to be indemnified against potential lawsuits as part of the deal.
“I just don’t think there’s a level of risk that Skydance is willing to accept,” he said.
What’s next for Paramount
Amid the merger drama, Paramount announced the departure of CEO Bob Bakish in late April after he reportedly disagreed with Redstone over the Skydance deal. He has since been replaced by a consortium of “Office of the CEO” consisting of three heads of the company’s divisions.
Executives gathered for the company’s annual shareholder meeting on June 4, where they unveiled plans to cut costs by $500 million. The plan will include layoffs, exploration of potential asset sales, and partnering with competitors for streaming joint ventures.
The company had previously considered selling parts of its business, which industry observers said would become the norm after opening Skydance. BET and Showtime in particular have been the subject of consistent sales rumors in recent years. Paramount ultimately decided not to sell the company in parts, largely because of Redstone’s choice to keep the company.
“There’s an effort to keep the organization intact to increase the value of the sale, but now I’m thinking about ways to contain and sell assets across the organization,” Hamilton said.
There is still a possibility that Redstone will sell all or part of its controlling stake in National Entertainment to a third party, analysts said.
“Ms. Redstone now seems set on either continuing the status quo or divesting herself only her NAI stock,” MoffettNathanson analyst Robert Fishman wrote on Friday.
Looking ahead, Greenfield said he expects a pause in Paramount M & A activity over the next 12 to 18 months: “There are many easy lifts mentioned to create value that do not require a sale today.”
Still, he believes “National Entertainment wants to sell Paramount eventually.”
But Fishman warned, “Any plan, and any potential buyer of Paramount, will have to contend with a company whose mix of assets presents in many ways a challenging hand to navigate the winds of change from the media,” a nod to the light of Paramount’s linear network, debt balance, and profitability woes that included a $286 million loss in its own streaming business.
Alexandra Canal as a Senior Reporter at Yahoo Finance. Follow him in X @allie_canal, LinkedIn, and email her at alexandra.canal@yahoofinance.com.
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