Paramount's Options: Apollo-Sony or Skydance? The CEO Office Might Win Out | Analysis
06/05/2024 15:00
What the hell is going on with Paramount? After letting a 30-day negotiating window with Skydance Media lapse on Friday, the board's special committee decided over the weekend to formally consider a $26 billion, all-cash offer for the company from Sony Pictures Entertainment and the private equity firm Apollo Global Management.
The committee will continue to explore the initial deal proposed by Skydance founder David Ellison. But they will also consider the Sony-Apollo joint deal, according to two individuals TheWrap spoke with on Sunday.
It sounds like we are back to square one.
There is, however, another option. The newly-named "Office of the CEO" — composed of the three top executives Brian Robbins, George Cheeks and Chris McCarthy — who replaced ousted CEO Bob Bakish last week, are in the drivers seat right now.
They are a viable go-forward option for Paramount, and they have a plan.
According to four individuals who spoke to TheWrap, the executives met with the Paramount board last week and offered a detailed plan to address the most pressing problems and turn the listing company around over the next three years.
The plan boils down to reducing Paramount's $14.6 billion debt through aggressive cost-cutting and raising cash by selling assets which would likely include, among other things:
* The Paramount lot for an estimated $2 billion, and then leasing it back for the studio's use.
* BET and VH1 networks, estimated value $3 billion
* Pluto TV, which is run by Tom Ryan
The internal plan would also involve aggressively reducing head count. And the CEO triumvirate is looking at strategic options for streaming, which could include the sale of Pluto or "potential alternatives" for Paramount+ as one insider put it, with the goal of getting to profitability by the end of 2025.
As everyone knows by now, Paramount Global — the owner of Nickelodeon, MTV, CBS and Paramount Pictures — has been seeking a way out of its current predicament. The company is enduring persistent declines in its stock price in the face of secular, downward pressure on broadcast and cable businesses and a still-unprofitable streaming business in Paramount+.
The aim of the plan would be to relieve the crushing debt burden and get Paramount's global debt upgraded from its current junk status, which continues to weigh down the stock price. Credit rating agency S&P Global recently downgraded Paramount's debt to junk, one level below investment grade, based on "weak credit metrics."
The other priority in the plan would be to restore payment of a dividend, which has endlessly aggravated Shari Redstone, the non-executive chairwoman of Paramount Global, president of National Amusements and the controlling shareholder of the studio. Bakish cut the divided by 75% in 2023 as a way of maintaining cash with the hope of driving up the stock.
That hasn't happened. The stock is down about 25% from a year ago. Without the normal dividend, Redstone feels backed into a corner.
A spokesperson for Paramount declined to comment on the meeting, the plan or the dividend.
The triumvirate's plan met with a positive reception from the board, according to one insider. The three executives apparently get along well, and were seen at Paramount's television upfronts in New York last week enthusiastically working the room of advertisers and talent together. Robbins has both solid digital and theatrical operating experience; Cheeks understands television and cable programming. Of the three, McCarthy is the strategic force — pushing for bottom line growth in Paramount+.
Their stewardship offers some compelling arguments as a counter to selling Paramount to either Skydance or Apollo.
For one thing, it is abundantly clear that — other than Redstone — shareholders are opposed to the Skydance deal, which would see the production company create a combined company with Paramount valued at around $5 billion. The stock has continued to slide in price with every news beat of the Skydance deal. News of the Apollo offer sent the stock back up.
On Sunday, Endeavor CEO Ari Emanuel and mega-director James Cameron came out in favor of the Skydance deal, suggesting it could revitalize a Hollywood stuck in the creative doldrums. This suggests a tension — Wall Street doesn't like the Skydance deal, but Hollywood does.
The Sony-Apollo deal is complicated but possible. The complication arises from the regulatory barriers to Sony, a Japanese company, owning a U.S. broadcast channel, CBS.
According to The New York Times , the terms currently being contemplated in the Sony-Apollo deal would involve Sony being the controlling shareholder, with Apollo owning a minority stake.
Indeed, it would make sense for Sony to operate the Paramount studio as part of its larger entertainment division, theatrical marketing and distribution operations.
According to the Times, the bidding group would probably push for Apollo, which is based in New York City, "to hold the rights to the CBS broadcast license," two people familiar with their strategy told the publication.
The idea would be to have Apollo sell its minority share back to Sony in a few years.It remains unclear if having Sony in the driver’s seat would dissuade the acquisition partners from selling off at least some of Paramount Global’s less-profitable pieces, especially if Paramount executives are already contemplating such a strategy to boost shareholder value.
While the options play out, insiders say one thing is clear: The saga of Paramount's next phase is apparently not going to be resolved in the short term.
The post Paramount's Options: Apollo-Sony or Skydance? The CEO Office Might Win Out | Analysis appeared first on TheWrap.
