Shari Redstone, president of National Amusements, speaks at the WSJ Tech Live conference in Laguna Beach, Calif., on Oct. 21, 2019.
Mike Blake | Reuters
Skydance Media’s offer to buy National Amusements and merge its studio with Paramount Pictures is not a conventional takeover. The question about Paramount Global Shareholders may be: Is it better than no deal at all?
Skydance made a unique proposal to Paramount Global’s special committee, which is responsible for accepting or rejecting transactions, and its investors, according to four people familiar with the details of the offer. Paramount Global will continue to be publicly traded. Skydance would own either a significant minority stake or a majority stake in Paramount Global by merging its assets and raising new equity capital, which it would acquire with private equity partners RedBird Capital Partners and KKR.
The consortium’s ownership stake in the new company could be around 45% or just over 50%, said the people, who asked not to be identified because the discussions are private. No details have been worked out and everything is still subject to change, the people said.
Representatives for Paramount Global and Skydance declined to comment.
The new equity will be dilutive for existing shareholders. But it will align voting and financial control in a way that has not happened with the Redstone family, which currently directly or indirectly owns 77% of Paramount Global’s Class A voting stock and 5.2% of common stock Class B. approximately 10% of the company’s total equity.
While David Ellison is primarily responsible for orchestrating the deal, his father, Oracle Co-founder and Chairman Larry Ellison would put up some of the new funding, the people said. It would also give Paramount Global access to artificial intelligence software and other data technology from Oracle.
Paramount Global has several valuable legacy media assets, including CBS, the Paramount Pictures studio and its physical lot, a studio library of films such as “The Godfather,” “Titanic” and “Forrest Gump,” and cable networks such as Comedy Central and Nickelodeon. It also owns a subscription streaming service (Paramount+) with more than 67.5 million subscribersand a free ad-supported service (Pluto TV) with more than 80 million monthly active users.
However, it has struggled to grow in recent years. Paramount Global’s annual revenue for 2023 was $29.7 billion, down 1.7% from 2022. Paramount+ continues to lose money. Paramount GlobalS&P Global Ratings’ debt rating was downgraded to junk last month because the company’s broadcast and cable businesses are shrinking as traditional pay-TV subscribers cancel.
Paramount Global has a market capitalization of about $7.6 billion and had $14.6 billion in long-term debt at the end of 2023. When CBS and Viacom merged in 2019, the combined market The company was valued at around $30 billion.
The Skydance plan
Over the past decade, Oracle has successfully transformed from a legacy enterprise technology company to a cloud services and AI-focused business. This is a similar thematic plan for what the Ellisons would like to do with Paramount Global – a legacy media company that needs to lean into the future to justify its existence.
David Ellison will likely lead the new company. Former NBCUniversal CEO Jeff Shell, in his capacity as president of sports and media at RedBird, is also expected to have a significant leadership role. Management would be open to divestitures that current CEO Bob Bakish has considered but ultimately rejected, such as selling BET Media Group and Showtime, the people said.
The new leadership will also assess more existential questions for Paramount Global, such as the future of Paramount+ and what the company’s role should be in a broader media ecosystem. No decisions have yet been made on those larger strategies, the people said.
Better than nothing
The transaction as proposed is not a full acquisition of Paramount Global. That’s what Paramount Global’s board would have preferred, but Ellison shied away from, the people said.
But the message to investors will be that the combination of David Ellison, his father’s Shell stake, Skydance’s assets and its commitment to new media (including Skydance’s video game development studio) is simply better for future development by Redstone and Bakish.
Paramount Global’s special committee will have to decide whether Skydance’s complicated transaction is better than the status quo — and also better than any other possible offer. The two sides have started exclusive talks to do deeper due diligence and possibly reach an agreement in the next month or two, the people said.
There could still be other avenues to pursue. Private company Apollo Global Management lobbied in a recent $26 billion company-wide offering, the Wall Street Journal reported this week, but Redstone chose to proceed with the Skydance talks as an exclusive. Redstone has been informally looking for a buyer for Paramount Global for years, according to people familiar with the matter. Apollo’s late bid may be an attempt to keep the private equity firm around the corner in case the Skydance deal falls through.
Discovery by Warner Bros held preliminary discussions with Paramount Global but stopped working on a deal earlier this year, CNBC reported in February.
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Disclosure: NBCUniversal is the parent company of CNBC.