Why Shari Redstone needs the right deal

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Why Shari Redstone needs the right deal



Shari Redstone, President of National Amusements, speaks at the WSJ Tech Live conference on October 21, 2019 in Laguna Beach, California.

Mike Blake | Reuters

Paramount Global Non-executive chairwoman and majority shareholder Shari Redstone has been talking to potential buyers interested in acquiring her media company or parts of it for years, but the seriousness of those discussions has increased in recent months.

There are industry-related reasons why a deal seems increasingly urgent. The media world is changing rapidly. During the Covid-19 pandemic, legacy media companies appeared to have a growth path by launching their own streaming services. But Wall Street subsequently turned its back on this narrative Netflix Growth stalled in 2022, leaving companies like Paramount Global in the wind.

Paramount Global’s flagship streaming service, Paramount+, has successfully acquired 63 million subscribers and continues to grow. But it’s also still losing money, although not as much as it used to. Streaming operating losses were $238 million in the third quarter. A year ago it was $343 million.

Without a clear growth narrative, Paramount Global struggled as a publicly traded company. Shares have fallen 56% over the past two years. That has drawn interest from some private equity firms and other potential buyers, including David Ellison of Skydance Media and media mogul Byron Allen.

If Paramount Global — which owns Paramount Pictures, CBS, cable networks like Nickelodeon and Comedy Central, and intellectual property like “Star Trek” and “SpongeBob SquarePants” — withers away as a publicly traded company, perhaps taking it private or selling its assets for parts makes more sense.

Redstone also has personal reasons for thinking about selling now. She has long been actively involved in Jewish causes, including serving on the board of Combined Jewish Philanthropies.

Redstone’s focus on combating anti-Semitism has increased since the Oct. 7 Hamas terrorist attack on Israel that killed about 1,200 people, according to people familiar with Redstone’s thinking.

“Look, I’m honestly not feeling well,” Redstone told The Hollywood Reporter in October. “I don’t think there are words to describe what happened and I just try every day to do something that will make a difference and help people.”

Shari Redstone, President of National Amusements, arrives at the Allen and Co. Sun Valley Annual Media Conference in Sun Valley, Idaho on July 5, 2022.

Brendan Mcdermid | Reuters

In addition, there is significant financial consideration associated with National Amusements Inc., or NAI, the holding company that owns the majority of Paramount Global’s voting shares.

When Redstone’s father, Sumner Redstone, the founder of National Amusements, died in 2020, Shari Redstone inherited his shares. National Amusements owns, directly or indirectly through subsidiaries, 77% of Paramount Global’s Class A voting shares and 5.2% of its Class B common shares, representing approximately 10% of the Company’s total capital stock.

According to tax law, Shari Redstone must pay taxes on the shares, which are tied to the value at the time of her father’s death. That amounts to more than $200 million, according to a person familiar with the matter.

Redstone has deferred tax filing for 10 years until 2034 and only owes about $7 million this year, said the person, who asked not to be identified because the details are confidential. Still, the looming tax payment, along with an additional $37 million debt payment to Wells Fargo in March, could be a compelling rationale for selling National Amusements for cash rather than executing an equity trade with a strategic partner.

National Amusements will make its March payment on time, according to a Redstone spokesman.

“National Amusements has significant assets, including our well-located cinemas in the US, UK and Latin America, owned properties and an interest in Paramount Global. “We continue to take steps to improve our financial position, including by reducing debt with meaningful repayment in March,” the spokesperson said.

The real deal

Redstone’s different motivations for selling mean she’s looking for the right deal at the right price — and so far she’s had options.

Warner Bros. Discovery has held preliminary discussions to take over Paramount Global. While Warner Bros. Discovery board member John Malone suggested in a November interview with CNBC that Paramount Global could be a future distressed asset, that fate can be avoided if CEO Bob Bakish can make Paramount+ profitable.

There could be structural issues with a Warner Bros. Discovery deal surrounding a cash stock split, including how much debt a combined company would want to carry. It’s also possible that Warner Bros. Discovery is waiting to see if Comcast is ready to part ways with NBCUniversal.

In initial discussions with buyers, Redstone has pushed for a large premium for both National Amusements and Paramount Global, according to people familiar with the matter. Paramount Global has a market cap of nearly $10 billion and net debt of about $13 billion.

As non-executive chairman of Paramount Global, Redstone also has fiduciary duties. If she agrees to fully sell either National Amusements or Paramount Global, she will need to seek support from other investors.

The banker Byron Trott, who supports Redstone in the sales negotiations, has long been an advisor to Warren Buffett, whose Berkshire Hathaway is Paramount Global’s largest Class B shareholder.

No deal is imminent, people familiar with the process said. As CNBC reported last month, Skydance is interested in acquiring NAI in a two-step transaction that would involve Skydance merging with Paramount Pictures.

Talks with Redstone regarding NAI are further along than with Paramount Global, two of the people said. Still, Skydance is only interested in acquiring NAI if a deal can be struck with Paramount Global, CNBC reported in January.

Spokespeople for Skydance, National Amusements and Paramount Global declined to comment.

Renewal of the Charter

There is also the problem CharterThe emerging carriage deal with Paramount Global expires in April, according to people familiar with the matter. This may not be an indication of the urgency of a sale at Redstone, as a likely deal will come together well before an acquisition is completed, but it is certainly at the forefront when it comes to the company’s future prospects.

While Comcast, the largest U.S. cable provider, and Paramount Global quietly renewed their contract in December, Charter is a different beast. The second largest US cable network operator has reached an agreement Disney This paved the way last year for Charter to divest itself of little-used cable networks and instead sell subscription streaming services directly to its millions of broadband customers.

Paramount Global charges $5.99 per month for Paramount+ including advertising. Most of what airs on CBS and Paramount Global’s cable networks is available on Paramount+. This gives Charter two advantages when renewing a contract.

First, Charter will likely argue that Paramount Global set a $5.99 price on the value of all its cable networks and CBS. Charter may call this a maximum price for what it is willing to pay for Paramount Global’s linear channels.

Second, Charter now has some blackout influence with consumers because it can point them to Paramount+ as a relatively inexpensive way to access Paramount’s content. Charter will make the same argument as Disney: having the same content on both the streaming service and linear channels effectively puts a double burden on the consumer.

Paramount CEO Bob Bakish speaks with CNBC’s David Faber on September 6, 2023.

CNBC

Paramount Global likely can’t afford to lose transportation for the majority of its networks with Charter as Paramount+ continues to lose money. Paramount Global remains dependent on its linear business, which generated $15 billion of its $22 billion in revenue from traditional television in the first nine months of 2023. More than $6 billion of that came from cable affiliate fees.

Bakish has been successful in securing renewal deals with major pay-TV distributors since he took over as CEO in 2019 and even since his time leading Viacom starting in 2016. However, given Bakish’s lack of leverage, he may have to settle for lower affiliate fees or an agreement that devalues ​​Paramount+.

Disclosure: Comcast owns NBCUniversal, the parent company of CNBC.

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2024-02-03 13:36:16

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