Skydance Emerges Victorious in the Battle for Paramount Global
The entertainment industry is abuzz with the latest developments surrounding Paramount Global. Skydance Media, led by David Ellison, has emerged as a key player in the potential acquisition of the media giant. This move could significantly reshape the landscape of Hollywood and Wall Street, as the future of Shari Redstone’s media empire hangs in the balance.
Skydance is currently in an exclusive period until early May to finalize a two-step deal to acquire Paramount Global and its controlling shareholder, National Amusements (NAI), led by Paramount non-executive chair Shari Redstone. According to sources cited by CNBC, Skydance will soon meet with Paramount management to begin its due diligence process.
However, the structure of the proposed transaction has raised concerns among some investors. They worry that the deal might benefit Redstone but dilute the shares of non-voting shareholders of Paramount. The company’s stock, which closed at $11.97 last Friday, has fallen around 10 percent since then.
Adding to the uncertainty, four Paramount directors are expected to step down from the company’s board in the coming weeks. Among them is Redstone’s attorney Rob Klieger, along with three members of the eight-person committee of independent board members assessing the potential Skydance deal. At least one of the departing members has expressed concern about the deal, according to The Wall Street Journal.
Guggenheim analyst Michael Morris has weighed in on the situation, describing the key decision for investors as whether it is worth acquiring Skydance to remove Shari Redstone and re-orient the business for sustained growth. Morris maintained his “buy” rating with a $19 stock price target, suggesting that a Skydance agreement may be more likely. He argued that Redstone would likely support the Skydance combination as it values NAI at a premium to the market value of Paramount’s shareholdings.
Morris also considered the possibility of a competing offer, such as the reported $26 billion cash bid from Apollo Global Management. He noted that the board might not need to choose that offer over the Skydance offer, given the potential for future shareholder value creation with Skydance.
LightShed Partners analysts Richard Greenfield, Brandon Ross, and Mark Kelley are less optimistic about the Skydance deal being completed. They questioned whether chaos and dysfunction at Paramount might imperil the merger. The team shared that they have yet to find an investor who supports the Paramount/Skydance merger, as it would massively dilute shares even if there is potential for long-term value creation.
The LightShed analysts believe that NAI is not interested in a sale of Paramount to private equity, making a Skydance transaction more likely. However, they highlighted that the market reaction is creating a real challenge. If Paramount shares continue to fall, it may become harder to issue $7 billion-$8 billion of equity for Skydance’s assets and cash infusion.
The LightShed team also outlined an alternative scenario: if the Skydance deal falls through, NAI might bring in new management to run Paramount and sell a sizable portion, if not all, of NAI to a third party. They predict a shift in streaming strategy toward selling key content to the highest bidders and possibly scaling back or forming a joint venture for Paramount+.
Bank of America analyst Jessica Reif Ehrlich also shared her perspective, maintaining her “underperform” rating and $9 stock price target. She emphasized that while a deal could create long-term value, the heavy lifting required following a deal takes time. Reif Ehrlich assumed that Skydance would acquire NAI with financial partners RedBird Capital and KKR, with Paramount then buying Skydance via newly issued stock. She noted that this scenario would not be a clear win for Paramount shareholders.
Reif Ehrlich also expressed skepticism about the reported $26 billion bid from Apollo, suggesting that Skydance is best positioned to move forward with a Paramount transaction. She highlighted potential tax consequences from future asset sales that need to be considered.
Tom Cane, head of private funds research at Mergermarket, described Skydance as currently in a favorable position. He noted that agreeing on a deal that works for everyone will be challenging, given Paramount’s dual-class structure. If a deal cannot be agreed upon, it remains to be seen whether Apollo’s reported bid could be a viable alternative.
Cane also pointed out that private equity powerhouses like Apollo and TPG have shown interest in Hollywood and could be potential bidders for assets as consolidation takes shape. He expects more media and entertainment deal activity, driven by financial pressures from weak advertising and the shift away from cable television.
In conclusion, the battle for Paramount Global is far from over, with Skydance Media currently leading the charge. The outcome of this high-stakes negotiation will have significant implications for the future of the media and entertainment industry.
Source: CNBC, The Wall Street Journal, Guggenheim, LightShed Partners, Bank of America, Mergermarket
