Skydance and Paramount are in the process of negotiating a complicated deal that would see David Ellison’s studio and its backers take control of Shari Redstone’s famed film and television company. The exclusive, one-month negotiation period until May 3 may be extended by a few weeks given the complexity of the transaction, Deadline says.
The broad outlines of a Skydance deal would include a roughly $2 billion payout to Redstone for a controlling interest in the family holding company NAI (which Paramount controls through its Class A voting shares), as well as the National Amusements theater chain and related real estate assets provide. Step two would be for Paramount to acquire Skydance in an all-stock deal worth about $4 billion to $5 billion. This is currently being worked on and will likely end up at the higher end of the range.
Skydance’s last capital increase in fall 2022 with KKR as a new investor resulted in an enterprise value of over $4 billion.
Eventually, Par’s new owners, led by wealthy Oracle founder Larry Ellison and RedBird Capital, would provide Paramount with a few billion dollars in fresh cash.
The company would stay together and remain listed.
Meanwhile, after an initial offer for the studio and a standalone offer of more than $25 billion for the entire company failed to gain traction, private equity giant Apollo joined forces with Sony to make an all-cash offer of the same amount Height that Paramount would privatize and probably split up. Given the ongoing discussions between Paramount and Skydance, the partners have not yet made a formal offer. But Deadline learns they’re thinking about doing this even before the exclusivity ends, and certainly if a deal doesn’t materialize. Skydance has a big lead and Sony sees its joint offer as a reasonable alternative if that fails. The duo would also need time for due diligence, the deep dive into Paramount’s financials that were offered to Skydance.
Paramount investors, most of whom own the more liquid but non-voting Class B shares, have been vocal in their opposition to the Skydance deal because it is intended for Shari Redstone but does not include a buyout premium for her. Dual classes of voting and non-voting shares ensure family control of a company, even if it may only hold a small share of equity, as in the case of Redstone. Several institutions have threatened to sue Redstone and the board for breach of fiduciary duty. The news earlier this month that four Paramount directors would resign from the board at the annual meeting was a strange sight.
There is an argument that savvy investors know the two classes of shares and know that they are buying into a so-called “controlled company”. Most of them own the B shares. Mario Gabelli, founder and CEO of GAMCO Investors, owns voting shares – most of them after Redstone – and has publicly protested the outlines of a deal that was made over his head without offering him a price.
Litigation is a given in M&A. If this deal goes through, only time will tell how convincing the arguments are.
Skydance would collapse the two share classes.
The company expects a cash injection combined with a restructuring to boost Paramount’s weak stock price over time, and investors like the Ellisons and RedBird will have a significant stake in the game.
David Ellison would run Paramount with Jeff Shell as president. Further roles have not yet been confirmed, including one for Jeff Zucker. Dana Goldberg, Skydance’s chief creative officer, could be involved.
Comcast abruptly fired Shell as CEO of NBC Universal a year ago because of an “inappropriate” relationship with someone at the company. He then moved to RedBird as chairman of sports and media investments.
Zucker leads a RedBird joint venture with IMI, an Abu Dhabi-based investment fund.
Unlike many other shareholders, Hollywood largely favored a deal with Skydance rather than Apollo, given private equity’s checkered history. Sony joining Apollo was a game changer.
Deadline learns that while Apollo’s only offer included Saudi money, the offer Apollo is considering with Sony did not. But there would be regulatory hurdles to scale, including approval to merge two of the last major studios – albeit both much smaller than Disney or Fox, which merged in 2019. Agents and talent might not be thrilled to have one less place to shop for projects.
Foreign ownership rules would likely prevent Sony from owning Paramount’s broadcast assets, something Apollo would have to figure out. Sony primarily wants to use the studio and intellectual property, especially in the TV sector, to expand its program offering. We understand that Sony/Apollo would request an exclusive window to negotiate should talks between Skydance and Paramount fail.
One can assume that dual roles would lead to layoffs in a Sony takeover.
Skydance will keep its assets intact, but Deadline hears it is also considering a major restructuring of Paramount and streamlining functions at CBS, cable, BET and Nickelodeon under one central team. Shell developed something similar at Universal Television in 2020. A Disney restructuring under Bob Iger early last year created a new Disney entertainment division. According to Deadline, Skydance is looking for ways to reduce linear costs and increase margins. If it finds a formula for running linear businesses in a word of cord cutting, it will be the first.
Paramount is struggling with high debt, persistent streaming losses and the decline of linear television. The company said in February that it would report a $1 billion charge related to layoffs and program delays in its first-quarter results scheduled to be released next week. And one upcoming date is April 30, when Paramount’s carriage agreement with Charter Communications expires. As is usual in these moments, the country’s second-largest cable provider will try to pay less and possibly abandon lower-rated networks. Charter has said a groundbreaking deal with Disney last year that axed some long-standing channels and added Disney+ to the package will be a template for future negotiations.