Paramount Global goes back to playing the field this week with two suitors still pursuing the company that has been surrounded by a highly public M&A drama for months. And it’s unlikely to end any time soon.
The company reached the end of its 30-day exclusive negotiating window with Skydance Media on May 3 without coming to an agreement. Sony Pictures Entertainment and Apollo Global Management, meanwhile, are moving forward with a $26 billion all-cash offer that raises regulatory and political concerns in this election-year environment. The special committee of Paramount Global’s board of directors that has been handling the M&A negotiations now intends to proceed with discussions with both the Skydance and Sony/Apollo groups, as reported Sunday by the New York Times and confirmed by multiple sources.
That decision leaves Skydance CEO David Ellison and his backers, which include Gerry Cardinale’s RedBird Capital, with a decision to make after failing to come to terms during their exclusive courtship. After months of talks between Paramount Global and Skydance, it’s hard to see the motivation for Ellison to hang in much longer if Paramount goes deep with into negotiations with Sony/Apollo. However, engaging with Sony/Apollo could be a fig leaf for Paramount’s board of directors, which is virtually assured of facing shareholder lawsuits if it accepts the offer as currently outlined with Skydance Media. That transaction, even after the Skydance team agreed to add more cash to Paramount’s balance sheet, is seen as being too generous to controlling shareholder Shari Redstone at the expense of common shareholders. A representative for Ellison declined to comment.
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Whatever is to come next for Paramount Global, it’s likely to play out slowly. The special committee is expected to begin a formal process with Sony/Apollo that will need time to facilitate meetings, data exchanges, proposals and counterproposals. That transaction would require careful handling because federal regulators under the Biden administration have drawn a hard line against consolidation, fighting proposed transactions including Paramount’s sale of Simon & Schuster to Penguin Random House and JetBlue Airways’ purchase of Spirit Airlines. A deal involving Paramount will be scrutinized by the Justice Department, Federal Trade Commission and Federal Communications Commission. A spokesman for the special committee declined to comment.
A third option for Paramount Global was put in place last week with the establishment on April 29 of the tri-part Office of the CEO, following the forced resignation of CEO Bob Bakish after nearly eight years at the helm. The possibility of Paramount soldiering on as a standalone entity seems like a long shot. But it was expressed to company insiders that the trio of George Cheeks of CBS, Chris McCarthy of Paramount Networks/MTV Studios and Brian Robbins of Paramount Pictures/Nickelodeon will have a shot to present a long-term strategic vision for revitalizing the company that has struggled amid the larger business gyrations in film and TV.
As details of the CEO shakeup trickled down through the ranks last week, it spurred some hope that an outright change of ownership for Paramount Global may not be a fait accompli. For insiders at a company that has endured nearly a decade of turmoil, moving forward with the newly installed triumvirate is seen as a devil-you-know option.
The Skydance offer comes with the promise of a new management team led by Ellison and RedBird’s Jeff Shell taking over. A sale to Sony/Apollo would possibly spur the divestiture of CBS or other large assets. The uncertainty about what’s around the corner for the various arms of Paramount Global has become a morale drag on employees as much as it has been a financial drag on the company’s stock price. Paramount Global shares sank 7% on Friday to close at $12.89, amid reports that talks with Skydance appeared to be faltering as the exclusive negotiating window came to an end.
No less a renowned investor than Warren Buffett expressed his frustration with Paramount Global over the weekend in his comments at Berkshire Hathaway’s annual shareholders’ meeting. Buffett surprised the industry by buying shares in Paramount Global in early 2022. By the end of last year, Berkshire had amassed 63.3 million shares, according to CNBC. On May 4, at the shareholders gathering in Omaha, Neb., Buffett confirmed that he has sold all of Berkshire’s Paramount holdings.
“We lost quite a bit of money” on Paramount, Buffett told the crowd. The investor, who is famous for doing his homework on companies before placing his bets, described it as a learning experience that made him think about the entertainment marketplace in general.
“I certainly thought harder even about the whole question of what people do with their leisure time and what the governing principles are of running an entertainment business of any sort, whether it’s sports or movies or whatever it might be,” Buffett said. “And I think I’m smarter now than I was a couple years ago. But I also think I’m poorer because I acquired the knowledge in the manner I did.”
