A view of Paramount Studios in Los Angeles, Sept. 26, 2023.
Mario Anzuoni | Reuters
National Amusements stopped merger discussions between Paramount Global and Skydance this week — throwing into query what’s next for the legacy media giant during a tumultuous period for the industry.
Paramount, like a lot of its peers, is grappling with the way to make streaming a profitable business because it faces peak competition, a rapidly shrinking universe of cable-TV customers and a slowdown within the promoting market that has especially weighed on the bundle.
Now it’s as much as the three leaders on the helm of Paramount to determine the corporate’s best path forward.
Bob Bakish stepped down from the highest post in April and was replaced by the so-called Office of the CEO: CBS CEO George Cheeks, Paramount Media Networks CEO Chris McCarthy and Paramount Pictures CEO Brian Robbins. The executives try to steer Paramount out of a rocky period while working under a structure that few corporations have tried.
“It is very difficult for a trio of CEOs to work on an extended term basis. It’s almost unheard of. How will they make decisions on allocating capital and strategic priorities?” said Jessica Reif-Ehrlich, an analyst at BofA Securities.
On Wednesday, the leaders sent a memo to Paramount employees saying they’d deal with their plan to show the corporate around after the proposed deal didn’t move forward.
“So, what does this mean for Paramount? While the Board will at all times remain open to exploring strategic alternatives that create value for shareholders, we proceed to deal with executing the strategic plan we unveiled last week in the course of the Annual Shareholder Meeting, which we’re confident will set the stage for growth for Paramount,” the trio said within the memo that CNBC obtained Wednesday.
No deal
After months of negotiations in a sale process that included various twists, National Amusements informed Paramount’s special committee and the buying consortium that included Skydance and personal equity firms RedBird Capital and KKR minutes before a vote that it was stopping the sale process.
The move got here a bit of greater than every week after Skydance and Paramount had agreed to financial terms of a merger that might have been valued at $8 billion.
The deal had been awaiting signoff from Redstone, who owns National Amusements, the controlling shareholder of 77% of sophistication A Paramount shares.
In a press release Tuesday, National Amusements said that while it had “agreed to the economic terms that Skydance offered, there have been other outstanding terms on which they may not come to agreement.” National Amusements also voiced its support for Paramount’s current leadership.
While those near the deal have offered conflicting reasons for why it was called off, an individual accustomed to the matter said Redstone turned down the offer after Skydance lowered the amount of cash she would receive with the altered bid to be able to shift a few of it to the category B shareholders.
Within the last iteration of the deal, Redstone would have received $2 billion for National Amusements and Skydance would have bought out roughly 50% of sophistication B shares at $15 apiece, or $4.5 billion, leaving the holders with equity in the brand new company.
In recent days, other potential bidders for National Amusements emerged, in line with reports. Redstone plans to explore selling her controlling stake in Paramount Global without an associated transaction involving merging studio assets, as Skydance had proposed.
While Apollo Global Management and Sony had formally expressed interest in “a full acquisition” of the corporate for $26 billion, Redstone favored a deal that kept Paramount whole, which was not the plan for these bidders, CNBC previously reported.
Path forward
Paramount’s Office of the CEO acknowledged the corporate faces more uncertainty after the deal dissolved.
“We recognize that the last several months haven’t been easy as we manage through ongoing change and speculation,” the leadership trio said in Wednesday’s memo to employees. “And, we must always all expect a few of this to undoubtedly proceed because the media industry and our business proceed to evolve.”
Though the corporate reached financial terms on the proposed cope with Skydance, Paramount’s latest leadership team outlined a plan ultimately week’s shareholder meeting within the event a transaction didn’t happen.
The strategic priorities that were highlighted included exploring streaming three way partnership opportunities with other media corporations, eliminating $500 million in costs through measures equivalent to layoffs and divesting noncore assets.
The memo noted more can be discussed at an organization town hall June 25. The leaders are also expected to flesh out more details of the plan during August’s earnings call.
The executives set those priorities with a watch toward lowering Paramount’s debt load and returning the corporate to investment grade status after it was downgraded earlier this 12 months. Paramount has $14.6 billion in debt.
Within the memo to employees Wednesday, Paramount’s leadership team said it will deal with executing this plan.
“Work is already underway, as we deal with three pillars: Transforming our streaming technique to speed up its path to profitability; Streamlining the organization and reducing non-content costs; Optimizing our asset mix, by divesting a few of our businesses to assist pay down our debt,” the leaders said within the memo.
Redstone has backed the trio of CEOs since they took over in late April, and voiced that support before introducing them in the course of the shareholders’ meeting presentation.
In Wednesday’s memo, the leadership once more emphasized growing content and franchises while also specializing in slashing costs and lowering debt, a priority the executives outlined during their presentations.
However the unorthodox nature of the CEO office — which Redstone acknowledged in the course of the shareholders call — has industry analysts wondering if the plan can succeed.
“The corporate must deal with a few things, like fixing the balance sheet so it gets flexibility back and deal with the companies that actually profits. Also, possibly selling assets or changing the asset mix,” said Reif-Ehrlich. “But it is a very difficult situation. Uncertainty is the worst thing.”
Whether it’s these CEOs putting this plan to work, or an acquirer that takes over, they should contend with various challenges, said Robert Fishman, an analyst at MoffettNathanson, in a research note.
Amongst those, Paramount’s earnings are driven by its traditional TV networks, that are primarily general entertainment — possibly probably the most challenged content in media, as Disney’s Bob Iger said last 12 months. A weak promoting market could also weigh on the corporate in the approaching months.