HomeBusinessWhat's next for Paramount after the demise of the Skydance merger?

What’s next for Paramount after the demise of the Skydance merger?

The future of Paramount Global (PARA) is now at stake after Shari Redstone, who controls Paramount through her family’s holding company National Amusements (NAI), ended merger talks with Skydance Media.

“I was surprised,” J. Christopher Hamilton, a former entertainment industry executive and professor at Syracuse University, told Yahoo Finance. “The deal still seemed far away.”

Hamilton wasn’t the only one shocked by the decision. An independent special committee of Paramount’s board recently recommended the economics of the Skydance deal after months of back and forth — and was even expected to vote on the merger just before Redstone reversed the deal.

Investors took notice, too: Paramount’s shares fell about 8% after the decision became known to the public.

“Immediately we heard industry executives and investors calling her crazy and many other unspeakable people for not taking ‘the money’ from Skydance,” Rich Greenfield of LightShed Partners wrote on Wednesday.

So why did Redstone walk away – and what could the decision mean for the company she controls?

“Ultimately, we believe that the legal risk of Skydance’s proposed transaction proved to be far too high compared to National Amusements’ alternatives,” Greenfield wrote, noting that the Skydance transaction was “great” for Redstone and NAI, but “terrible” for public Paramount shareholders.

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Skydance, which has previously worked with Paramount to produce hit film franchises including “Mission Impossible,” “Top Gun: Maverick” and “Transformers,” reportedly revised its offer several times after non-voting shareholders raised concerns about the terms of the original agreement. discussions, which would have netted Redstone $2 billion in cash as the first step in the transaction.

But critics argued that Redstone still unfairly benefited from the offering while diluting public stakeholder ownership. As a result, the threat of a lawsuit loomed.

Hamilton agreed that threat was a primary overhang for the transaction, especially since Redstone would likely need to be indemnified against potential lawsuits as part of the deal.

“I just don’t think that was a level of risk that Skydance was willing to accept,” he said.

Amid the merger drama, Paramount announced the departure of CEO Bob Bakish in late April after he reportedly had a disagreement with Redstone over the Skydance deal. He has since been replaced by an ‘Office of the CEO’ consortium made up of three company division heads.

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Executives gathered for the company’s annual shareholder meeting on June 4, where they unveiled a plan to cut $500 million in costs. The plan includes layoffs, exploring potential asset sales and partnerships with streaming joint venture competitors.

The company has previously weighed the sale of parts of its business, which industry watchers say will be the norm after Skydance’s breakup. BET and Showtime in particular have been the subject of persistent sales rumors in recent years. Paramount ultimately decided not to sell the company in parts, largely due to Redstone’s preference to keep the company together.

“There was an attempt to keep the organization intact to increase sales value, but now I think they are looking at ways to contain costs and sell assets relative to the entire organization,” Hamilton said.

Shari Redstone, chairman of ViacomCBS and president of National Amusements, reacts as she celebrates her company's merger at the Nasdaq Market site in New York, U.S., December 5, 2019. REUTERS/Brendan McDermid

Shari Redstone, chairman of ViacomCBS and president of National Amusements, reacts as she celebrates her company’s merger at the Nasdaq Market site in New York, December 5, 2019. (REUTERS/Brendan McDermid) (REUTERS/Reuters)

There is still a possibility that Redstone will sell all or part of its controlling stake in National Amusements to a third party, analysts said.

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“Ms. Redstone now appears determined to continue the status quo or merely divest her stake in NAI,” MoffettNathanson analyst Robert Fishman wrote on Tuesday.

Looking ahead, Greenfield said he expects a lull in Paramount’s M&A activity over the next 12 to 18 months: “There are plenty of the above easy ways to create value that don’t require a sale today.”

Still, he believes that “National Amusements would ultimately like to sell Paramount.”

But Fishman warned: “Any plan, and any potential buyer of Paramount, will have to deal with a company whose mix of assets in many ways presents a tricky hand in navigating the changing winds of media,” a nod to the linear network exposure from Paramount. a debt-ridden balance sheet and profitability issues, including losses of $286 million in its streaming business alone.

FILE - The main entrance to Paramount Studios is seen on Melrose Avenue, July 8, 2015, in Los Angeles.  National Amusements, which owns a majority stake in embattled entertainment giant Paramount Global, said on Tuesday (June 11, 2024) that it has ended talks on a possible Paramount merger with Skydance Media.  (AP Photo/Nick Ut, File)FILE - The main entrance to Paramount Studios is seen on Melrose Avenue, July 8, 2015, in Los Angeles.  National Amusements, which owns a majority stake in embattled entertainment giant Paramount Global, said on Tuesday (June 11, 2024) that it has ended talks on a possible Paramount merger with Skydance Media.  (AP Photo/Nick Ut, File)

The main entrance to Paramount Studios is seen on Melrose Avenue, July 8, 2015, in Los Angeles. (AP Photo/Nick Ut, File) (ASSOCIATED PRESS)

Alexandra Canal is a senior reporter at Yahoo Finance. Follow her on X @allie_canal, LinkedIn, and email her at alexandra.canal@yahoofinance.com.

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