A view of the water tank at Paramount Studios as SAG-AFTRA members walk the picket line outside during a strike on September 26, 2023 in Los Angeles, California, USA.
Mario Anzoni | Reuters
National Amusements is Paramount Global And its acquisition of Skydance this week has raised questions about the long-established media giant’s future at a time of industry turmoil.
Paramount, like many other companies, is exploring how to make streaming a profitable business in the face of increasing competition, a steep decline in cable TV subscribers and a sluggish advertising market that has particularly weighed heavily on streaming services.
Now it’s up to Paramount’s top three to figure out the best way forward for the company.
Bob Bakish stepped down as chief executive in April and was replaced by the so-called “Office of the CEO” — CBS CEO George Cheeks, Paramount Media Networks CEO Chris McCarthy and Paramount Pictures CEO Brian Robbins — as executives work under a structure few companies have ever attempted to steer Paramount out of a difficult period.
“It’s going to be very difficult to have three CEOs working long term. It’s almost unprecedented. How are they going to make decisions about capital allocation and strategic priorities?” said Jessica Reif Ehrlich, an analyst at Bank of America Securities.
On Wednesday, management sent a memo to Paramount employees saying they would focus on a plan to turn the company around after the proposed deal failed to move forward.
“So what does this mean for Paramount? While the Board remains open to exploring strategic options that will create value for shareholders, it remains focused on executing the strategic plan we announced at last week’s Annual Meeting, which we believe will provide a foundation for growth for Paramount,” the people said in the memo obtained by CNBC on Wednesday.
No trading at all
After months of twists and turns in the sale process, National Amusements notified Paramount’s special committee and a bid consortium that included Skydance, private equity firms RedBird Capital and KKR that it was halting the process just minutes before the vote.
The move comes just over a week after Skydance and Paramount agreed to financial terms for a merger that would have been valued at $8 billion.
The deal was pending approval from Redstone, whose controlling shareholder National Amusements holds 77 percent of Paramount’s Class A shares.
“While we agreed to the financial terms presented by Skydance, there were other terms that were not agreed to,” National Amusements said in a statement on Tuesday. National Amusements also voiced its support for Paramount’s current management.
People involved in the deal gave conflicting reasons for the cancellation, but a person familiar with the matter said Mr. Redstone turned down the offer because Skydance had reduced the amount he would receive in its revised bid and decided to give part of it to Class B shareholders.
In the previous deal, Redstone would receive $2 billion for National Amusements and Skydance would buy about 50% of the Class B stock for $15 a share, or $4.5 billion, leaving holders with equity in the new company.
Other potential bidders for National Amusements have reportedly emerged in recent days, and Redstone plans to consider selling a controlling stake in Paramount Global without a deal that would combine studio assets like the one proposed by Skydance.
Apollo Global Management and Sony had formally expressed interest in “buying Paramount outright” for $26 billion, but Redstone preferred a deal in which Paramount would remain in its entirety, which was not the bidders’ plan, CNBC previously reported.
Forward Pass
Paramount’s CEO office acknowledged that the company faces further uncertainty following the termination of the deal.
“We recognize that the past few months have not been easy as we have navigated ongoing change and speculation,” the three executives said in a memo to employees on Wednesday, “and we must all prepare for these to undoubtedly continue as the media industry and our business continue to evolve.”
The company has reached financial agreement with Skydance on the proposed deal, but Paramount’s new management team outlined plans at a shareholders meeting last week if the deal doesn’t go through.
Strategic priorities highlighted included exploring streaming joint venture opportunities with other media companies and cutting costs by $500 million through measures such as layoffs and selling non-core assets.
The memo said further details would be discussed at an internal town hall meeting on June 25, and executives from both companies are expected to provide further details about the plans when they report earnings in August.
Executives set these priorities as they seek to reduce Paramount’s debt load and return it to investment-grade status after it was downgraded earlier this year. Paramount has $14.6 billion in debt.
Paramount executives said in a memo to employees on Wednesday that they are focused on executing the plan.
“We are focused on three pillars – work is already underway – to transform our streaming strategy and accelerate our path to monetization, streamline our organization and reduce non-content costs, and optimize our asset mix by divesting select businesses to help pay down debt,” the executives said in the memo.
Redstone has supported the three CEOs since they took over in late April, expressing his support before introducing them in a shareholder presentation.
In Wednesday’s memo, management reiterated its emphasis on expanding content and franchises, as well as focusing on cutting costs and reducing debt, priorities that executives outlined in their presentation.
But the unorthodox nature of the CEO office, as Redstone acknowledged in a shareholder call, has industry analysts questioning whether the plan will succeed.
“The company needs to focus on a few things, like fixing its balance sheet to regain flexibility and focus on the businesses that are really making money. It could also consider selling assets or changing its asset mix,” Reif Ehrlich said. “But this is a very difficult situation. The uncertainty is the worst.”
Whoever executes the plan, whether it’s the CEO or an acquirer, will have to contend with a number of challenges, MoffettNathanson analyst Robert Fishman said in a research note.
Paramount’s revenue is driven primarily by its traditional TV networks, which are part of general entertainment and, as Disney’s Bob Iger said last year, may be the toughest medium to sell. A weak advertising market could also weigh on the company in the coming months.
