A view of the Paramount Studios water tank as SAG-AFTRA members walk the picket line outside during their ongoing strike in Los Angeles, California, USA, September 26, 2023.
Mario Anzuoni | Reuters
National Amusements halted merger talks between Paramount Global and Skydance this week – raising the question of what’s next for the legacy media giant at a tumultuous time for the industry.
Paramount, like many of its competitors, is grappling with how to make streaming a profitable business as it faces stiff competition, a rapidly shrinking number of cable TV subscribers and a slowdown in the advertising market that has put particular strain on the package .
Now it’s up to three executives at the helm of Paramount to figure out the best path forward for the company.
Bob Bakish resigned from the top post in April and was replaced by the so-called “office of the CEO”: CBS CEO George Cheeks, Paramount Media Networks CEO Chris McCarthy and Paramount Pictures CEO Brian Robbins. Executives are trying to steer Paramount out of a difficult patch while working within a structure that few companies have tried.
“It is very difficult for a trio of CEOs to work long-term. This almost never happens. “How will they make decisions about capital allocation and strategic priorities?” said Jessica Reif-Ehrlich, an analyst at BofA Securities.
On Wednesday, executives sent a memo to Paramount employees saying they would focus on their plan to turn the company around after the proposed deal fell through.
“So what does this mean for Paramount? While the Board remains open to exploring strategic alternatives that create value for shareholders, we remain focused on executing the strategic plan that we presented last week at the Annual General Meeting and in which we are confident.” “The Creating conditions for growth for Paramount,” the trio said in the memo, obtained by CNBC on Wednesday.
No problem
After months of negotiations in a sales process that included various twists and turns, National Amusements informed Paramount’s special committee and the buying consortium, which included Skydance and private equity firms RedBird Capital and KKR, minutes before the vote that the sales process had been halted become.
The move came just over a week after Skydance and Paramount agreed to financial terms of an $8 billion merger.
The deal was awaiting signing by Redstone, owner of National Amusements, the controlling shareholder of 77% of Paramount’s Class A shares.
In a statement Tuesday, National Amusements said that while it had “agreed to the economic terms offered by Skydance, there were other outstanding terms on which they were unable to agree.” National Amusements also expressed support for Paramount’s current leadership.
While those interested in the deal have cited conflicting reasons for the rejection, a person familiar with the matter said Redstone rejected the offer after Skydance lowered the amount of money it would receive in the amended offer to shift part of it to the Class B shareholders.
In the final phase of the deal, Redstone would have received $2 billion for National Amusements and Skydance would have bought out about 50% of the Class B shares at $15 apiece, or $4.5 billion, leaving holders would have shares in the new company.
More potential bidders for National Amusements have reportedly emerged in recent days. Redstone plans to explore selling its majority stake in Paramount Global without a related transaction involving the pooling of studio assets, as Skydance had suggested.
While Apollo Global Management and Sony had officially expressed interest in a “full takeover” of the company for $26 billion, Redstone favored a deal that would retain Paramount as a whole, but that wasn’t the plan for those bidders, according to CNBC previously reported.
Way forward
Paramount’s CEO’s office acknowledged that the company faces greater uncertainty following the deal’s unraveling.
“We recognize that the last few months have not been easy as we deal with constant change and speculation,” the leadership trio said in the note to employees on Wednesday. “And we should all expect that some of this will undoubtedly continue as the media industry and our business continue to evolve.”
Although the company had agreed on the financial terms of the proposed deal with Skydance, Paramount’s new leadership team presented a plan in the event a transaction did not happen at last week’s shareholder meeting.
Strategic priorities highlighted included exploring streaming joint venture opportunities with other media companies and saving $500 million in costs through measures such as layoffs and divestment of non-core assets.
The memo said more details would be discussed at a company meeting on June 25. Executives are also expected to flesh out more details of the plan during its August earnings release.
Executives set those priorities to reduce Paramount’s debt load and return the company to investment-grade status after it was downgraded earlier this year. Paramount has $14.6 billion in debt.
In the memo to employees Wednesday, Paramount’s leadership team said it would focus on executing that plan.
“The work is already underway as we focus on three pillars: transforming our streaming strategy to accelerate its path to profitability; Streamlining organization and reducing non-content costs; “Optimize our asset mix by divesting some of our businesses to help pay down our debt,” the leaders said in the memo.
Redstone has supported the CEO trio since they took office in late April and expressed that support before introducing it during the presentation at the shareholder meeting.
In Wednesday’s memo, leadership re-emphasized expanding content and franchises while focusing on cutting costs and reducing debt, a priority executives laid out in their presentations.
But the unorthodox nature of the CEO position – which Redstone acknowledged during the shareholder conference – has industry analysts wondering whether the plan can succeed.
“The company needs to focus on a few things, such as repairing the balance sheet so that it becomes more flexible again and focusing on the businesses that really make profits. It may also need to sell assets or change the asset mix,” Reif-Ehrlich said. “But this is a very difficult situation. Uncertainty is the worst.”
Whether these CEOs put that plan into action or a buyer takes over, they will face several challenges, MoffettNathanson analyst Robert Fishman said in a research note.
Among other things, Paramount’s revenue is driven by its traditional television networks, which focus primarily on general entertainment — perhaps the most challenged content in media, as Disney’s Bob Iger said last year. A weak advertising market could also weigh on the company in the coming months.
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2024-06-12 20:07:19
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