Paramount stock (PARA) moved lower on Monday after the entertainment giant announced it plans to merge with Skydance Media in a deal that would mark an end to the Redstone family's control of the company.
The agreement, announced late Sunday, comes after years of deal speculation surrounding Paramount, which is controlled by Shari Redstone through her family's holding company, National Amusements (NAI).
Paramount shares dropped about 3% in midday trading the following day as investors digested the terms of the new deal, which includes Skydance first acquiring NAI (and Redstone's stake) for $2.4 billion in cash before completing a full merger.
National Amusements owns approximately 10% of Paramount's equity capital value and maintains 77% of voting shares valued at around $1 billion.
Under the terms of the deal, Paramount Class A voting shareholders will receive $23 a share while Class B nonvoting stockholders will be able to cash out at $15 a share, representing a roughly 35% premium based on current trading levels.
Redstone ended talks with Skydance in June after months of back-and-forth, which included multiple sweetened offers from the production studio after nonvoting shareholders expressed concerns over the terms of the initial discussions.
Talks resumed less than 30 days later as Skydance amended its previous offer.
"From our perspective, this deal is likely slightly worse for the Class-B holders than the prior deal, but likely still values PARA at ~$13," wrote KeyBanc analyst Brandon Nispel. "Given other reports suggest Barry Diller's IAC is also interested in NAI, and the schizophrenic nature of previous discussions, we think it's better for investors to just sit this one out and wait to learn more about the go-forward strategy."
'Linear is challenged'
Paramount owns a slew of media assets, including CBS, BET, Showtime, and MTV, along with its namesake studio business and streaming platform. Skydance has previously collaborated with Paramount on the production of popular film franchises, including "Mission Impossible," "Top Gun: Maverick," and "Transformers."
"As a longtime production partner to Paramount, Skydance knows Paramount well and has a clear strategic vision and the resources to take it to its next stage of growth," Redstone said in a press release.
Skydance, which will be valued at $4.75 billion following the all-stock deal's completion, said it will inject $6 billion of cash into Paramount, with $1.5 billion going directly into its debt-ridden balance sheet.
Skydance CEO David Ellison will become chairman and CEO of the combined company while former NBCUniversal executive Jeff Shell, who was ousted last year over an "inappropriate relationship" with a female employee, will serve as president.
In a conference call early Monday, the new leadership team laid out their strategic vision for Paramount, which will include $2 billion in cost cuts that will be delivered "pretty rapidly."
"We love the creative engine of this company. But obviously, a big chunk of the company is in the linear world and we know linear is challenged and declining," Shell said.
"I think a lot of us in the business know we got to run these businesses in a different way as they decline," he continued, adding the goal is to focus on future cash flow generation.
The two sides have also agreed to a 45-day "go-shop period," which allows other potential bidders to submit offers.
The deal, set to close in the first half of 2025, is still subject to regulatory approval. It is widely expected that Skydance will look to offload non-core assets of the company, like BET, following the merger's completion.
"One area that remains unclear is how much of the new company Skydance would hold onto," Third Bridge analyst Jamie Lumley wrote in a note to clients. "We’ve heard from our experts for a while that the best strategy for Paramount is to spinout non-core assets."
The messiness of the negotiations has been an overhang for the company at large.
Amid the drama, Paramount announced the departure of CEO Bob Bakish in late April after he was reportedly at odds with Redstone over the Skydance deal. He has since been replaced by an “Office of the CEO” consortium made up of three company division heads.
Alexandra Canal is a Senior Reporter at Yahoo Finance. Follow her on X @allie_canal, LinkedIn, and email her at [email protected].
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