Paramount Global shares rose 7.5% to close at $12.80 Monday on the news that a long-awaited merger with Skydance Media moved closer to completion.The company’s stock has declined markedly in recent years, falling to about one-third of its level in late-2019, when the reunion of CBS and Viacom became official. As various M&A scenarios circulated over the past three months, however, including a now-less-likely transaction involving Sony Pictures Entertainment and private equity giant Apollo, the shares have risen almost 30%. Monday’s spike, on higher-than-average trading volume, showed investor’s continued belief in the near-term upside of an acquisition.Skydance has been in talks for months with Shari Redstone’s National Amusements Inc., which controls 77% of Paramount’s voting shares but only 10% of its equity. The David Ellison-led suitor appears to have largely satisfied many initial critics who viewed his previous offers as sweetheart deals for Redstone. According to multiple press reports, Skydance’s updated bid would enable Class B (non-voting) shareholders to collect $15 a share as Skydance injects $1.5 billion into Paramount, enabling it to pay down debt. The framework, which still requires Redstone’s final blessing, would see Skydance pay about $7.9 billion in cash for NAI’s 77% stake in Class A (voting shares) and about 60% of Class B shares.Laurent Yoon, an analyst with Bernstein Research, offered one early take on the latest Skydance proposal in a note to clients. He remains cautious on Paramount, rating its shares “underperform” (sell) with a 12-month price target of $11.“If Skydance’s offer is accepted and closed at some point, the more important question is what happens next,” Yoon wrote. “There are cost opportunities for sure (as in any transaction) but Skydance management and its backers must find ways to stabilize and grow the combined entity (which wouldn’t be much bigger).”There is still uncertainty about how controlling shareholder Shari Redstone will play her hand, as well as about potential regulatory/corporate governance scrutiny, Yoon added. Broadcast network CBS and owned CBS stations being part of the deal is expected to draw scrutiny from the FCC, for example.The interim leadership of Paramount will deliver a presentation to shareholders at the company’s annual meeting Tuesday, following that with a town hall meeting for employees on Wednesday.
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