Paramount Global‘s ouster of CEO Bob Bakish did not reassure investors that there’s a favorable exit in store for the media conglomerate.
Shares of the company were down more than 4% in trading Tuesday morning to under $12/share, after Bakish’s exit was officially announced and he was replaced by three senior execs tasked with running Paramount Global — for now, anyway.
Wall Street analysts said the dismissal of Bakish, who was said to oppose Paramount Global’s prospective merger with David Ellison’s Skydance Media, along with the company’s refusal to take questions during its first-quarter 2024 earnings call Monday was evidence that an M&A deal is nearing. Paramount’s Q1 results were decent, as the company boosted Paramount+ streaming subs to more than 71 million and significantly narrowed streaming losses, while its TV group saw revenue up 1% thanks largely to the Super Bowl on CBS. But the financial results have taken a backseat to uncertainty over a potential sale of the company.
“It is unclear how long this trio will get the opportunity to lead Paramount – if all goes according to Skydance’s plan, the tenure of this triumvirate will be short, with Ellison and former NBCU CEO Jeff Shell looking to take the lead roles” at a newly merged entity, MoffettNathanson analyst Robert Fishman wrote in a research note.
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Investors may also have reacted negatively to a report that Ellison does not want to give Paramount shareholders have yea-or-nay power over the final deal. Skydance “is prepared to walk from the deal if such a vote is mandated,” CNBC reported Monday. Shari Redstone, the nonexecutive chair of Paramount Global and its controlling shareholder, has agreed to give nonvoting shareholders of Paramount Global approval over any Skydance deal, in a concession to investor concerns that she’s negotiating an exit based on her own best interests.
A rival offer for Paramount Global may be in the works from Sony Pictures and private-equity giant Apollo Global Management, which have discussed teaming on a bid to take Paramount private. “It appears [Paramount Global] is simply biding time until it either merges with Skydance or accepts a superior takeout offer,” Matthew Dolgin, senior equity analyst at Morningstar, said in a note Tuesday. The firm maintains a fair-value estimate of $20/share on Paramount Global “but we fear the board may favor a deal with Skydance, which we don’t think would be in shareholders’ best interests.”
Dolgin predicted that if Paramount Global accepts Skydance’s offer, that “will open up the company and directors to shareholder lawsuits.” Several of Paramount’s big shareholders, including Mario Gabelli’s Gamco Investors, Ariel Investments and MatrixAsset Advisors have publicly criticized the deal, arguing it destroys value for common shareholders.
The basic shape of the Skydance deal looks like this: Redstone would sell her stake in National Amusements Inc., which holds 77% of the voting shares in Paramount Global, to Skydance, whereupon Skydance would merge with Paramount Global in an all-stock deal that would value Skydance at $5 billion. Paramount Global would remain a publicly traded company. Redstone would receive up to $2 billion from the Skydance-NAI transaction.
Redstone and the Paramount Global board’s special committee that was established to vet M&A offers have an exclusive deal-negotiation window with Skydance that expires May 3 but may be extended. To sweeten the bid, Skydance has offered to acquire Paramount shares at a premium and on top of that would pay $3 billion in cash to Paramount Global.
Meanwhile, in reporting Q1 earnings, Paramount Global didn’t provide any update on the status of carriage negotiations with Charter Communications, whose deal is due to expire Tuesday (April 30). “The good news, if there is any, is we have yet to see any threats of blackouts,” Fishman noted. “This could mean a short-term extension is in order or even more optimistically a renewal framework is already in place.” The analysts added, “Of course, the leadership change could impact any prior negotiations.”
