Deadline; Paramount Global Nears Crossroads After Latest Acquisition Offer: What’s Shari Redstone’s Next Move?

Story from Deadline:

News of Byron Allen’s $30 billion offer (including debt) for Paramount Global has restarted Hollywood’s most active parlor game: Whither Paramount and assets like its 112-year-old film studio and iconic Melrose lot?

Paramount is taking Allen’s bid seriously enough, as Deadline understands it, to form a special board committee to evaluate any potential bids. Shari Redstone, non-executive chair of the company and head of its controlling shareholder National Amusements, is not a member of the special committee, a person familiar with the body told Deadline. The purpose of excluding her is to provide an extra layer of scrutiny for all potential transactions. David Ellison’s Skydance Media, RedBird Capital and Apollo Global Management have expressed interest in the Paramount assets, and Paramount CEO Bob Bakish discussed a potential combination with Warner Bros. Discovery CEO David Zaslav last December.

Conversations with Wall Street and industry veterans on Wednesday elicited a range of reactions to Allen but also highlighted that a decision point is arriving for Redstone. Some question the solidity of the financing for Allen’s proposed deal, noting that backers in a tricky economic climate marked by high interest rates have not yet been identified. They also cite a catalog of offers made by Allen, including for ABC and other Disney TV assets, BET and Tegna, without any reaching fruition.

“People remember the ABC offer. They remember BET. The latest stuff that he’s done hasn’t panned out,” said one fund manager. 

Regardless, Redstone is approaching a key decision point barely four years after the merger of CBS and Viacom, a long-sought move envisioned as a crowning achievement as presided over the company built by her late father, Sumner Redstone. The bright vision of that pre-pandemic time has become increasingly clouded. While all of media has been whipsawed by cord-cutting, advertising volatility and the invasion of deep-pocketed tech companies, Paramount has struggled more than most of its peers.

The ailing stock rallied Wednesday as bulls saluted the rich premium of Allen’s proposal to pay $14.3 billion for the company’s equity (relative to the company’s market value of $9.7 billion). Even so, as Paramount’s most recent annual report notes, $100 invested in the company’s Class A (voting) shares at the end of 2017 would have been worth just $37 by the end of 2022, while the S&P 500 and the S&P 500 Media & Entertainment Index posted solid returns. In 2023, that divergence only widened, putting Redstone’s strategy under the spotlight.

Wednesday’s 6% upswing in the share price “is more perhaps because it accelerates what’s already in motion and adds some fuel” to sale talk, one fund manager said.

The state of the company’s financial affairs will be put on display February 28 when fourth-quarter results are reported, with interest running high about trends in advertising and any signs of long-elusive streaming profits.

Significantly, Allen’s offer includes two different takeout prices, one for Redstone’s voting stock in NAI, which is higher, and another for the common stock. “It’s interesting that he is offering a different price for the A versus the B,” the financial source added. “I don’t know if that’s because it’s something that Shari has told people that she is going to need?”

The former stand-up comic has an unconventional approach, in some cases initially communicating his M&A proposals via text message. Regardless of Allen’s “maverick” style, the source added, he has advanced the talk about Paramount from where it was weeks ago, when word first emerged of Ellison’s interest. “It does look like the idea is to sell the whole company instead of just Shari selling her stake.”

Paramount’s dual-class ownership structure presents an interesting twist. Redstone’s combined stake in the company’s Class A and B shares is around 10%. But her nearly 80% of the Class A (voting) shares means that pretty much any bidder would have to buy both Paramount and NAI, as acquiring Paramount alone would still leave Redstone in control. Taking over her stake via NAI, on the other hand, would likely prompt a pileup of lawsuits if the new owner tried to force deals or mergers onto minority shareholders. Another salient detail: The Oracle of Omaha, Warren Buffett, is the biggest individual shareholder of Paramount, even though he doesn’t control its voting shares. And “he doesn’t like to be taken advantage of,” one observer notes.

A number of others are urging Paramount to act quickly on Allen’s interest before the stock price sinks any lower. KeyBanc Capital analyst Brandon Nispel urged the company to “immediately take this deal,” calling out the all-cash form of the bid as especially appealing.

Media analyst Steven Cahall with Wells Fargo sees Allen as credible, disagreeing with skepticism about his spree of prior offers. “Those deals didn’t always have willing sellers,” the analyst wrote in a note to clients. Allen’s diversified media company includes plenty of linear TV, including the Weather Channel and local stations. He not only would want those holdings, but also would likely finance the deal “by lining up a buyer(s) for Paramount Studios + LA real estate,” Cahall added. “These are assets that interested parties like Skydance likely want.”

Skydance, whose bid recently gained support from Ellison’s father, Oracle founder Larry Ellison, has long been closely aligned with Paramount. The company has financed many of the biggest hits in the studio’s recent history, including Top Gun: Maverick and multiple Mission: Impossible and Transformers installments. Unlike Allen, Ellison is said to be uninterested in the linear TV portfolio and would instead focus on fortifying the movie studio, according to those familiar with his thinking.

Since Allen and Skydance each want different assets, could they team up on an offer?

“There’s taxes and egos involved, and whatever. But yes, it kind of makes sense,” one Wall Streeter reasoned. Still, that division of things is a bit simplistic, he noted – and they wouldn’t need to. Money is not the Ellisons’ problem if they want to do a deal.

Comparing bids head to head, Hollywood insiders say, it’s no contest. Ellison wants a legacy studio badly and they don’t become available often. So, if Ellison père wants to back David Ellison, it’s a done deal – if Shari Redstone truly wants to sell, say a few Hollywood insiders. The question becomes valuation – a delicate matter in light of reports that Allen’s most recent bid was his second for Paramount, with the first coming last April at a price north of $18 billion.

And much as Ellison wants the studio, he’s said to desire the legacy lot as well. That’s perhaps the best outcome for those who wanted the lot to stay intact, and not be sold off. Paramount’s lot has deeper roots than any other. Its signature iron gates were fortified in the 1920s, according to Hollywood lore, as a way to keep fans of Rudolph Valentino from overwhelming the silent movie star. It is seen as valuable in an era of booming investment in production facilities in the U.S. and elsewhere, as well as with demand for sound stages surging given all the production backlogs post-pandemic and post-strikes.

Cahall assigns a roughly $2 billion value on the 62-acre lot, the only one still physically located in Hollywood. Theatrical moviegoing may be in an uncertain state, but he sees Paramount’s film output having increased worth in a world of increased licensing to Netflix and other streamers.

Key advantages for the Ellisons as would-be studio operators, investors and insiders note, include money and partners with deep pockets, including Gerry Cardinale’s RedBird Capital, another potent investor. “It’s really about looking at how the studio can be managed as a profitable business, looking at the cash flow, and whether a deal makes sense or not,” said one investor.

MoffettNathanson’s Robert Fishman isn’t a believer on Allen ultimately being Redstone’s savior. “In placing a bid for Paramount, Mr. Allen is seeking control of a company with increasingly challenged fundamentals,” Fishman wrote in a client note. “By assuming the totality of the company’s debt, he could run the risk of triggering change of control covenants. Mr. Allen reportedly would seek to sell Paramount’s studio, among other assets, and focus on running the company’s linear networks and streaming service, Paramount+, in a more efficient manner, to which we wish him the best of luck!”

Fishman says questions about Allen’s financing are “casting a shadow on the offer’s credibility.” The overture comes, he noted, with media on its back foot. “The situation in U.S. media has increasingly progressed from challenged to desperate, leaving management teams to consider commensurately desperate measures,” he wrote. “That clearly now includes accelerated M&A talks. In short, we acknowledge the environment in traditional media has shifted away from pure fundamentals with growing interest in these assets, including from some unexpected sources.”

Reps from Paramount, National Amusements and Allen Media Group declined to comment for this story when contacted by Deadline.