Paramount Global and Skydance Media are making progress on a deal that would merge the media companies and buy out controlling shareholder Shari Redstone, according to people familiar with the matter.
Paramount Global’s special committee, which is responsible for accepting or rejecting deals, and David Ellison’s Skydance Media, backed by private equity firms KKR and RedBird Capital Partners, are limiting how Skydance’s assets are valued as part of a merger, as well as how much equity to add to the company as part of a recapitalization, the people told CNBC.
The sides are close to agreeing on a value for Skydance, said the people, who asked not to be identified because the discussions are private. The entertainment company will be valued at about $5 billion and will merge with Paramount Global, they said. Skydance CEO Ellison and private equity firms plan to raise about $4.5 billion to $5 billion in new equity capital, the people said. A portion of that — about $2 billion — will be used to pay Redstone, and another significant portion will be used to pay down debt.
The buyers would ideally like to close a deal in May, the people said. Three of the people said Paramount Global has been slow to provide data during due diligence on the Skydance consortium, which has slightly delayed the timeline for a deal. The exclusivity window in the merger talks expires on May 3, but the Skydance consortium wants to extend it by two weeks, the people said.
Skydance plans to name Ellison as Paramount Global CEO and former NBCUniversal CEO Jeff Shell as chairman, two of the people said. Current Paramount CEO Bob Bakish will leave the company, the people said.
Separately, private equity firm Apollo Global Management and Sony have held preliminary discussions about working together on a deal that would buy out all of Paramount Global’s shareholders at a premium, according to people familiar with the matter. The special committee has not received specific details about that bid and does not see it as a competing bid in Skydance’s best interest, two of the people said.
But the committee had more details about an initial Apollo offer, which it chose to ignore in favor of exclusive talks with Skydance, one of the people said. The special committee favored Skydance’s bid over Apollo in part because it offered shareholders an upside future by keeping the company public with a cleaner balance sheet, the person said.
Representatives for Apollo, the Paramount Global special committee, Paramount Global and the Skydance joint venture declined to comment.
Last big hurdle
A major hurdle that remains is Paramount Global’s renewal deal with Charter Communications for CBS and its cable networks. That deal is tied to the value of Paramount Global, which could take a hit if Charter abandons the networks or agrees to lower carrier costs, the people said.
The deadline for this deal is April 30. Paramount Global reports first-quarter earnings a day earlier, on April 29.
Paramount Global still depends on its traditional television business, which accounts for about two-thirds of the company’s total revenue.
There are signs that Map could prove a tough negotiator with Paramount Global: Last year the cable provider, the second largest in the US, briefly stopped carrying the Disney networks when renewal negotiations between these two companies failed. The parties reached an agreement 10 days later.
Paramount’s cable networks are far less popular than Disney’s ESPN, which may put Bakish at a disadvantage.
The timing of the renewal and the deal talks created an awkward dynamic where Bakish, who would eventually leave the company under the Skydance merger, will control Paramount Global’s fate with Charter.
So far, Bakish has always struck renewal deals with the major pay-TV distributors since he took over as CEO, dating back to when he ran Viacom starting in 2016.
Bakish has argued privately against the Skydance deal because it dilutes common shareholders, according to people familiar with the matter. Several Paramount Global investors have also written public letters to the company’s board urging executives not to go ahead with a Skydance deal, arguing it gives Redstone a huge premium for its controlling shares while leaving common shareholders out in the cold. .
Under the terms of the deal, nearly 50 percent of the company would be owned by Skydance and its private equity partners, CNBC reported on April 5. The remainder of the company will be owned by common shareholders and the company will continue to be publicly traded.
“At Paramount, we’re always looking for ways to create value for shareholders. And to be clear, that goes for all shareholders,” said Bakish during his company’s most recent earnings call, on February.
Disclosure: Comcast is the parent company of NBCUniversal and CNBC.