Paramount's parent has reportedly ended merger talks with Skydance. What now?

By Bill Peters

Any other buyer 'will have to contend with a company whose mix of assets presents in many ways a challenged hand for navigating the shifting winds of media,' analyst says

Shares of Paramount Global slid on Tuesday following reports that Shari Redstone's National Amusements - Paramount's (PARA) controlling company - had scrapped merger talks between the media and entertainment giant and David Ellison's Skydance Media.

The move follows weeks of tensions surrounding a deal that saw the departures of Paramount's chief executive and several board directors, the emergence of rival bidders and anger from some shareholders who felt the deal with Skydance would reward Redstone at their expense.

The news about the failed talks was reported by the Wall Street Journal. The Journal said Redstone will now likely try to arrange a sale of only National Amusements, rather than looking to merge Paramount with another company.

Paramount - whose holdings include CBS, MTV, Comedy Central and the Paramount+ streaming service - declined to comment on the news. Skydance and National Amusements did not immediately respond to requests for comment.

But some analysts said that if the brief courtship between Paramount and Skydance was really over, the path ahead for Paramount was unclear, as the entertainment industry grapples with streaming-platform losses and massive changes in viewership habits.

"Any plan, and any potential buyer of Paramount, will have to contend with a company whose mix of assets presents in many ways a challenged hand for navigating the shifting winds of media," MoffettNathanson analysts said in a research note on Tuesday.

Paramount's stock was down 0.6% after hours on Tuesday, after finishing the regular trading session down 7.9%.

The drop during the regular session made the stock one of the biggest laggards on the S&P 500 Index SPX. Shares of Paramount are down 25.4% year to date.

Paramount and other media companies have cut costs, laid off staff and sought to combine as they try to find a path to profits for their streaming services and compete with Netflix Inc. (NFLX), which some analysts have already crowned the winner of the streaming wars that began more than a decade ago. Studios have pulled back on TV production in the wake of last year's strikes.

Sony (SONY) and private-equity firm Apollo Global Management Inc. (APO) also made their own offer for Paramount early last month. However, they were reportedly reconsidering that bid.

And in recent weeks, the Journal has also reported that two other parties are interested in potentially buying National Amusements, a movie-theater operator that owns 77% of Paramount's voting shares. Those parties were former media executive Edgar Bronfman Jr., who would have the backing of private-equity firm Bain Capital, and Hollywood producer Steven Paul.

Skydance - a production company behind some of Tom Cruise's "Mission Impossible" films - wanted to buy National Amusements for roughly $1.7 billion in cash, the Journal said. After that, Skydance would have merged with Paramount in a stock deal, the Journal said.

The Los Angeles Times reported on Tuesday that Paramount's independent directors were set to vote on the deal with Skydance. However, the Times said, National Amusements told the directors it would not sign off, after Skydance's efforts to offer shareholders a chance to cash out with more money cut into the value of National Amusements, to Redstone's dismay.

Paramount's former chief executive, Bob Bakish, was reportedly opposed to the deal with Skydance on the grounds that it didn't give enough to shareholders. Other board members were also opposed the deal, according to reports.

"Ms. Redstone now seems set on either continuing the status quo or divesting herself of just her [National Amusements] stake, handing over the reins of her family's empire to new stewards without delving into any broader or more complicated plan that would involve other media companies or shareholders," the MoffettNathanson analysts said.

"If Ms. Redstone decides to further explore only the sale of NAI, Paramount investors will be forced to weigh the updated plan laid out during last week's annual meeting," they continued.

The analysts said the details remained sparse, but highlights from the plan included $500 million in extra cost cuts and divestitures to pay off debt. They also included efforts to explore strategic partnerships and joint ventures for Paramount+, along with licensing deals.

But they said Paramount's profitability still depended on a TV network portfolio focused largely on general entertainment. Paramount+, they said, was still burning cash. Paramount's streaming service Pluto TV risked cannibalizing the ad sales of its traditional television business, they said, and its movie segment also had issues despite some recent successes.

"Paramount['s] film studio has managed to produce several respectable hits over the past few years, but production and financing deals limit much of the financial upside from these successes," they said.

-Bill Peters

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06-11-24 1914ET

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