Paramount Global/Skydance merger - Variety: Shari Redstone’s National Amusements Says It Has Ended Talks With Skydance About Paramount Merger

Story from Variety:

After more than six months of on-again-off-again talks, Shari Redstone has ended negotiations with David Ellison’s Skydance Media about a prospective merger with Paramount Global.

The news shocked the entertainment industry as there had been many signals this week that the sides were moving closer to a transaction. Redstone is Paramount Global’s controlling shareholder through National Amusements Inc., which owns 77% of the voting shares in Paramount. Paramount Global shares plummeted 7.9% in the final half-hour of trading Tuesday after the news of the Skydance talks ending broke, closing at $11.04 per share.

In a statement, Redstone’s NAI said, “National Amusements, Inc., the majority voting shareholder of Paramount Global, today announced that they have not been able to reach mutually acceptable terms regarding the potential transaction with Skydance Media for the acquisition of a controlling stake in NAI.”

The statement continued, “NAI is grateful to Skydance for their months of work in pursuing this potential transaction and looks forward to the ongoing, successful production collaboration between Paramount and Skydance.

“NAI supports the recently announced strategic plan being executed by Paramount’s Office of the CEO as well as their ongoing work and that of the Company’s Board of Directors to continue to explore opportunities to drive value creation for all Paramount shareholders,” the company said.

A rep for Skydance Media declined to comment. NAI’s decision to end talks with Skydance was first reported by the Wall Street Journal.

Jamie Lumley, media analyst with Third Bridge Research, speculated that the promise of legal fights with other shareholders may have been too daunting for Redstone to take the plunge with Skydance.

“A Skydance deal with Paramount raised a few eyebrows from the get-go,” Lumley said in a note published Tuesday. “As it became increasingly clear that Skydance intended to sell off assets following a merger, it seems likely Shari Redstone wanted greater say over the ultimate home of the pieces of her media empire. Additionally, the convoluted nature of the proposed merger might have led to legal challenges from common shareholders and threatened its viability.”

Robert Fishman, senior research analyst with MoffettNathanson, also weighed in with more unanswered questions about Paramount Global’s future.

“Ms. Redstone now seems set on either continuing the status quo or divesting herself of just her NAI stake, handing over the reins of her family’s empire to new stewards without delving into any broader or more complicated plan that would involve other media companies or shareholders,” Fishman wrote in a note published Tuesday.

The special committee Paramount Global’s board of directors that has been evaluating sale and merger options for the company since last fall also weighed in to reiterate that NAI called off the talks. The committee had been expected to vote today on the deal terms hammered out after months of back and forth. But that vote never happened, the committee confirmed in a statement.

“The Special Committee met on Tuesday to discuss progress of discussions regarding a potential transaction with Skydance Media. At that time, the Special Committee was informed by a representative of National Amusements, Inc. that it did not have an agreement on a deal with Skydance Media and didn’t anticipate a path forward on this transaction. The Special Committee did not vote on any potential transaction,” the statement said.

Redstone, daughter of late media mogul Sumner Redstone, and Ellison, son of Oracle founder and megabillionaire Larry Ellison, were ultimately unable to reach an agreement on the terms of a complex transaction that would have turned over control of Paramount Global to Skydance and its private-equity partners, RedBird Capital Partners and KKR.

Amid the chaos and uncertainty over the protracted negotiations among NAI, Paramount, and Skydance and its team, others have emerged to potentially scope out an acquisition of National Amusements alone (instead of trying to construct a deal that also comprises Paramount Global). Those include Edgar Bronfman Jr. and Bain Capital, which are considering a bid of up to $2.5 billion for NAI, as well as producer and filmmaker Steven Paul, who was behind the “Baby Geniuses” movie franchise.

Could Redstone decide that Paramount Global — even with its nearly $15 billion in debt (which recently was cut to junk status) and declining TV business — can go it alone? Tuesday’s statement from NAI suggests that is a possibility.

At Paramount Global’s shareholder meeting on June 4, the three execs running the company in the newly established Office of the CEO — George Cheeks, president and CEO of CBS; Chris McCarthy, president and CEO, Showtime/MTV Entertainment Studios and Paramount Media Networks; and Brian Robbins, president and CEO of Paramount Pictures and Nickelodeon — presented a strategy for the company that didn’t envision a new owner. The trio spoke about how they plan to cut upwards of $500 million in costs annually through layoffs and other cost-reduction measures, pursue a joint venture with Paramount+ and potentially sell some assets.

On Monday, Paramount extended change-in-control severance benefits to Cheeks, McCarthy and Robbins that kick in if the company transacts a sale or merger, and also granted the three co-CEOs bonuses for the time during which they serve in the office. Redstone ousted former CEO Bob Bakish on April 29, reportedly over Bakish’s clash with Redstone over pursuing the deal with Skydance.

Skydance’s last offer was tentatively agreed to earlier this month by Paramount Global’s special committee established to evaluate M&A offers, and it was submitted to Redstone for consideration last weekend. Under those proposed terms, the Skydance consortium would have paid Redstone about $2.1 billion for NAI and current Paramount Class B shareholders (who do not have voting rights) would have been able to cash in nearly half their shares for $15 per share. The Skydance group also would have paid $1.5 billion in cash to help pay down Paramount’s debt. After the merger of Paramount Global and Skydance, the Skydance consortium would have owned about two-thirds of the shares in Paramount as a public company.

Meanwhile, Sony Pictures and private-equity firm Apollo Global Management emerged as joint bidders for Paramount Global, floating an offer of $26 billion (including assumption of debt) last month. However, Sony and Apollo have since backed away from pursuing a deal for Paramount in its entirety.