SAG-AFTRA members see water tanks at Paramount Studios while walking on a picket line outside during an ongoing strike on September 26, 2023 in Los Angeles, California, USA.
Mario Anzoni | Reuters
Nationwide entertainment companies halt merger discussions Paramount Worldwide This week, Skydance also raised questions about what’s next for the traditional media giant during a period of industry turmoil.
Paramount, like many of its peers, is grappling with how to make streaming a profitable business as it faces fierce competition, a rapidly shrinking cable customer base and a slowing advertising market that threatens the bundle. Sales caused particularly high stress.
Now, it’s up to three leaders at the helm of Paramount to chart the company’s best path forward.
Bob Bakish resigned from the top job in April and was replaced by the so-called “Office of the CEO”: CBS CEO George Cheeks, Pai Ramon Media Networks CEO Chris McCarthy and Paramount Pictures CEO Brian Robbins. Executives are trying to lead Paramount out of a tough period while working under a structure that few companies have attempted.
“It’s very difficult for three CEOs to work together for a long time. It’s almost unheard of. How are they going to make decisions about capital allocation and strategic priorities?” said Jessica Reiff-Ehrlich, an analyst at Bank of America Securities.
Leaders sent a memo to Paramount employees on Wednesday saying they would focus on plans to turn around the company after a proposed deal failed to move forward.
“So, what does this mean for Paramount? While the board is always willing to explore strategic alternatives to create value for shareholders, we remain focused on executing the strategic plan we unveiled at our annual shareholder meeting last week and we are confident that will lay the foundation for Paramount’s growth.
No deal
After months of negotiations over a sale process that included various twists and turns, National Entertainment notified Paramount’s special committee and a buying consortium that included Skydance and private equity firms RedBird Capital and KKR minutes before the vote that it was halting the sale. process.
The move was announced at Skydance and Paramount Agree to financial terms of merger worth $8 billion.
The deal had been awaiting signature from Redstone, who owns National Amusements, the controlling shareholder of 77% of Paramount’s Class A shares.
National Amusements said in a statement on Tuesday that while it “agrees with the financial terms offered by Skydance, there are other outstanding terms that they are unable to agree on.” National Amusements also expressed support for Paramount’s current leadership.
While people close to the deal gave conflicting reasons for the cancellation, one person familiar with the matter said Skydance lowered the amount she would receive with the revised bid in order to transfer a portion of it to Class B shareholders.
In the final deal, Redstone will receive $2 billion from National Amusements, while Skydance will acquire about 50% of the Class B shares for $15 per share, or $4.5 billion, giving shareholders an equity stake in the new company.
Other potential bidders have reportedly emerged for National Amusements in recent days. Report. Redstone plans to explore selling her controlling stake in Paramount Worldwide rather than enter into a related-party transaction that would involve merging studio assets, as Skydance has proposed.
According to previous reports by CNBC, while Apollo Global Management and Sony have officially expressed interest in “fully acquiring” the company for $26 billion, Redstone prefers a deal that would keep Paramount intact, and this is not one of those Bidder’s plan.
way forward
Paramount’s CEO’s office acknowledged that the company faces more uncertainty after the deal unwinds.
“We recognize that the past few months have not been easy as we have dealt with continued change and speculation,” the three-person leadership team said in a memo to employees on Wednesday. “And, as the media industry and our businesses continue to evolve, we should all expect that this will undoubtedly continue.”
While the company has agreed on financial terms for its proposed deal with Skydance, Paramount’s new leadership team outlined a plan at last week’s shareholder meeting in case the deal doesn’t go ahead.
Highlighted strategic priorities include exploring streaming joint venture opportunities with other media companies and eliminating $500 million in costs through layoffs and divestment of non-core assets.
The memo states that more will be discussed at the company’s town hall on June 25.
Executives set these priorities to reduce Paramount’s debt load and return the company to investment grade after being downgraded earlier this year. Paramount has $14.6 billion in debt.
In a memo sent to employees on Wednesday, Paramount’s leadership team said it is focused on executing the plan.
“Work is already underway, and we are focused on three pillars: transforming our streaming strategy to accelerate its path to profitability; streamlining the organization and reducing non-content costs; and optimizing our portfolio by divesting some of our businesses. Help pay off our debt.
Redstone has supported the three CEOs since taking over in late April and expressed that support before introducing them during a speech at the shareholder meeting.
In Wednesday’s memo, leadership reiterated its emphasis on growing content and franchises while also focusing on cutting costs and reducing debt, priorities outlined by top executives in speeches.
But the unorthodox nature of the CEO’s office — something Redstone acknowledged on a shareholder call — has industry analysts doubting the plan’s success.
“Companies need to focus on a few things, such as repairing their balance sheets in order to regain flexibility and focus on truly profitable operations. In addition, there may be asset sales or asset mix changes,” Reif-Ehrlich said. “But it’s a very difficult situation. The uncertainty is the worst thing.”
MoffettNathanson analyst Robert Fishman said in a research note that whether these CEOs put the plan into action or an acquirer takes over, they will have to deal with various challenges.
Of that, Paramount’s revenue is driven by its legacy TV networks, which focus on general entertainment — which, as Disney’s Bob Iger said last year, may be the most challenging content in the medium. A soft advertising market could also weigh on the company in the coming months.
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