Shari Redstone, president of National Amusements, speaks on the WSJ Tech Live conference in Laguna Beach, California, on Oct. 21, 2019.
Mike Blake | Reuters
Paramount Global nonexecutive chair and controlling shareholder Shari Redstone has been talking to potential buyers all in favour of acquiring her media company — or parts of it for years — however the seriousness of those discussions has heightened in recent months.
There are sector-related reasons for why a deal seems increasingly urgent. The media world is changing rapidly. Throughout the Covid-19 pandemic, legacy media corporations seemingly had a path to growth by launching their very own streaming services. But Wall Street turned its collective back on that narrative after Netflix growth stalled in 2022, leaving corporations reminiscent of Paramount Global twisting within the wind.
Paramount Global’s flagship streaming service, Paramount+, has successfully accrued 63 million subscribers, and it’s still growing. Nevertheless it’s also still losing money, albeit not as much because it used to. Third-quarter streaming operating losses were $238 million. A yr ago, they were $343 million.
And not using a clear growth narrative, Paramount Global has struggled as a publicly traded company. Shares are down 56% prior to now two years. This has piqued the interest of some private equity firms and other potential buyers, including David Ellison at Skydance Media and media mogul Byron Allen.
If Paramount Global — which owns Paramount Pictures, CBS, cable networks reminiscent of Nickelodeon and Comedy Central, and mental property reminiscent of “Star Trek” and “SpongeBob SquarePants” — is withering as a publicly traded company, perhaps taking it private or selling a number of the assets for parts makes more sense.
Redstone has personal reasons for considering selling now, too. She has long had an energetic interest in Jewish causes, including having served on the board of Combined Jewish Philanthropies.
Redstone’s deal with fighting antisemitism has increased because the Oct. 7 Hamas terrorist attack on Israel, which killed about 1,200 people, in line with people aware of Redstone’s considering.
“Look, I’m not doing well, to be honest,” Redstone told The Hollywood Reporter in October. “I believe there aren’t any words to explain what took place, and all I do each day is attempt to do something that is going to make a difference and help people.”
President of National Amusements Shari Redstone arrives on the annual Allen and Co. Sun Valley media conference in Sun Valley, Idaho, on July 5, 2022.
Brendan Mcdermid | Reuters
Then there’s a big financial consideration related to National Amusements Inc., or NAI, the holding company that owns nearly all of Paramount Global’s voting shares.
When Redstone’s father, Sumner Redstone, the founding father of National Amusements, died in 2020, Shari Redstone inherited his shares. National Amusements directly or not directly through subsidiaries owns 77% of the Class A voting stock of Paramount Global and 5.2% of the Class B common stock, constituting about 10% of the general equity of the corporate.
In line with tax law, Shari Redstone must pay taxes on the shares tied to their value on the time of her father’s death. That amounts to greater than $200 million, in line with an individual aware of the matter.
Redstone has deferred the tax bill for 10 years, until 2034, and only owes about $7 million this yr, said the person, who asked to not be named because the small print are private. Still, the looming tax payment, together with an extra $37 million debt payment as a result of Wells Fargo in March, may very well be compelling motivation to dump National Amusements for money, reasonably than a trade of equity with a strategic partner.
National Amusements will make its March payment on time, in line with a Redstone spokesperson.
“National Amusements has significant assets including our well-located movie theaters within the US, UK and Latin America, owned real estate properties and shareholding in Paramount Global. We proceed to take steps to enhance our financial position including through debt reduction with a meaningful paydown in March,” the spokesperson said.
The precise sort of deal
Redstone’s varied motivations for selling mean she’s on the lookout for the best sort of deal, at the best price — and to this point, she has had options.
Warner Bros. Discovery has held preliminary talks to amass Paramount Global. While Warner Bros. Discovery board member John Malone suggested in an interview with CNBC in November that Paramount Global may very well be a future distressed asset, that fate will be avoided if CEO Bob Bakish could make Paramount+ profitable.
There may very well be structural issues with a Warner Bros. Discovery deal, when it comes to a cash-stock split, including how much debt a combined company would need to carry. It is also possible Warner Bros. Discovery may decide to wait to see if Comcast is willing to part with NBCUniversal.
In early talks with buyers, Redstone has pushed for a high premium for each National Amusements and Paramount Global, in line with people aware of the matter. Paramount Global has a market capitalization of nearly $10 billion and about $13 billion of net debt.
Redstone also has fiduciary duties as Paramount Global’s nonexecutive chair. If she agrees to sell either National Amusements or all of Paramount Global, she’ll need buy in from other investors.
Banker Byron Trott, who helps Redstone navigate sale talks, has long been an advisor for Warren Buffett, whose Berkshire Hathaway is Paramount Global’s largest Class B shareholder.
No deal is imminent, said people aware of the method. As CNBC reported last month, Skydance is all in favour of acquiring NAI as a part of a two-step transaction that will involve merging Skydance with Paramount Pictures.
Talks are further together with Redstone regarding NAI than they’re with Paramount Global, two of the people said. Still, Skydance is just all in favour of acquiring NAI if it will probably get a deal done with Paramount Global, CNBC reported in January.
Spokespeople for Skydance, National Amusements and Paramount Global declined to comment.
Charter renewal
There’s also the difficulty of Charter‘s looming carriage cope with Paramount Global, which is ready to run out in April, in line with people aware of the matter. This will not be guiding Redstone’s urgency for a sale, as a possible deal might be reached long before an acquisition closes, nevertheless it’s definitely looming over the corporate’s future prospects.
While Comcast, the most important U.S. cable provider, and Paramount Global renewed their deal with little fanfare in December, Charter is a special animal. The second-largest U.S. cable operator struck a cope with Disney last yr that paved the best way for Charter to start lopping off little-watched cable networks while directly selling subscription streaming services to its tens of millions of broadband customers.
Paramount Global charges $5.99 monthly for Paramount+ with promoting. Most of what airs on CBS and Paramount Global’s cable networks is out there on Paramount+. That provides Charter two benefits in a renewal deal.
First, Charter will likely argue Paramount Global has set a price of $5.99 for the worth of all its cable networks and CBS. Charter can point to that because the ceiling price for what it’s willing to pay for Paramount Global’s linear channels.
Second, Charter now has some blackout leverage with consumers because they’ll point them toward Paramount+ as a comparatively inexpensive way of accessing Paramount’s content. Charter will make the identical argument it did with Disney: The existence of the identical content on each the streaming service and the linear channels is effectively double charging the buyer.
Bob Bakish, CEO of Paramount, speaks with CNBC’s David Faber on Sept. 6, 2023.
CNBC
Paramount Global probably cannot afford to lose carriage for the majority of its networks with Charter, given Paramount+ continues to lose money. Paramount Global remains to be depending on its linear business, which earned $15 billion of its $22 billion in revenue in the primary nine months of 2023 from traditional TV. Greater than $6 billion of that was from cable affiliate fees.
Bakish has all the time successfully reached renewal deals with the foremost pay TV distributors since taking up as CEO in 2019 and even dating back to his time running Viacom, starting in 2016. Still, given Bakish’s lack of leverage, he could have to accept lower affiliate fees or an agreement that devalues Paramount+.
Disclosure: Comcast owns NBCUniversal, the parent company of CNBC.
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