Shari Redstone, president of National Amusements, speaks at the WSJ Tech Live conference in Laguna Beach, California, on Oct. 21, 2019.
Mike Blake | Reuters
Paramount Global nonexecutive chair and controlling shareholder Shari Redstone has been talking to potential buyers thinking about acquiring her media company — or parts of it for years — but the seriousness of those discussions has heightened in recent months.
There are sector-related reasons for why a deal seems increasingly urgent. The media world is changing rapidly. During the Covid-19 pandemic, legacy media firms seemingly had a path to growth by launching their very own streaming services. But Wall Street turned its collective back on that narrative after Netflix growth stalled in 2022, leaving firms resembling Paramount Global twisting in the wind.
Paramount Global’s flagship streaming service, Paramount+, has successfully accrued 63 million subscribers, and it’s still growing. Nevertheless it’s also still losing money, albeit not as much because it used to. Third-quarter streaming operating losses were $238 million. A yr ago, they were $343 million.
With out a clear growth narrative, Paramount Global has struggled as a publicly traded company. Shares are down 56% in the past two years. This has piqued the interest of some private equity firms and other potential buyers, including David Ellison at Skydance Media and media mogul Byron Allen.
If Paramount Global — which owns Paramount Pictures, CBS, cable networks resembling Nickelodeon and Comedy Central, and mental property resembling “Star Trek” and “SpongeBob SquarePants” — is withering as a publicly traded company, perhaps taking it private or selling a few of the assets for parts makes more sense.
Redstone has personal reasons for considering selling now, too. She has long had an energetic interest in Jewish causes, including having served on the board of Combined Jewish Philanthropies.
Redstone’s concentrate on fighting antisemitism has increased since the Oct. 7 Hamas terrorist attack on Israel, which killed about 1,200 people, in line with people acquainted with Redstone’s pondering.
“Look, I’m not doing well, to be honest,” Redstone told The Hollywood Reporter in October. “I feel there are not any words to explain what took place, and all I do on daily basis is attempt to do something that is going to make a difference and help people.”
President of National Amusements Shari Redstone arrives at the annual Allen and Co. Sun Valley media conference in Sun Valley, Idaho, on July 5, 2022.
Brendan Mcdermid | Reuters
Then there’s a big financial consideration related to National Amusements Inc., or NAI, the holding company that owns the majority of Paramount Global’s voting shares.
When Redstone’s father, Sumner Redstone, the founding father of National Amusements, died in 2020, Shari Redstone inherited his shares. National Amusements directly or not directly through subsidiaries owns 77% of the Class A voting stock of Paramount Global and 5.2% of the Class B common stock, constituting about 10% of the overall equity of the company.
In accordance with tax law, Shari Redstone must pay taxes on the shares tied to their value at the time of her father’s death. That amounts to greater than $200 million, in line with an individual acquainted with the matter.
Redstone has deferred the tax bill for 10 years, until 2034, and only owes about $7 million this yr, said the person, who asked to not be named because the details are private. Still, the looming tax payment, together with an extra $37 million debt payment because of Wells Fargo in March, may very well be compelling motivation to dump National Amusements for money, fairly than a trade of equity with a strategic partner.
National Amusements will make its March payment on time, in line with a Redstone spokesperson.
“National Amusements has significant assets including our well-located movie theaters in the US, UK and Latin America, owned real estate properties and shareholding in Paramount Global. We proceed to take steps to enhance our financial position including through debt reduction with a meaningful paydown in March,” the spokesperson said.
The right form of deal
Redstone’s varied motivations for selling mean she’s in search of the right form of deal, at the right price — and up to now, she has had options.
Warner Bros. Discovery has held preliminary talks to amass Paramount Global. While Warner Bros. Discovery board member John Malone suggested in an interview with CNBC in November that Paramount Global may very well be a future distressed asset, that fate could be avoided if CEO Bob Bakish could make Paramount+ profitable.
There may very well be structural issues with a Warner Bros. Discovery deal, when it comes to a cash-stock split, including how much debt a combined company would wish to carry. It is also possible Warner Bros. Discovery may decide to wait to see if Comcast is willing to part with NBCUniversal.
In early talks with buyers, Redstone has pushed for a high premium for each National Amusements and Paramount Global, in line with people acquainted with the matter. Paramount Global has a market capitalization of nearly $10 billion and about $13 billion of net debt.
Redstone also has fiduciary duties as Paramount Global’s nonexecutive chair. If she agrees to sell either National Amusements or all of Paramount Global, she’ll need buy in from other investors.
Banker Byron Trott, who helps Redstone navigate sale talks, has long been an advisor for Warren Buffett, whose Berkshire Hathaway is Paramount Global’s largest Class B shareholder.
No deal is imminent, said people acquainted with the process. As CNBC reported last month, Skydance is thinking about acquiring NAI as a part of a two-step transaction that may involve merging Skydance with Paramount Pictures.
Talks are further together with Redstone regarding NAI than they’re with Paramount Global, two of the people said. Still, Skydance is simply thinking about acquiring NAI if it may well get a deal done with Paramount Global, CNBC reported in January.
Spokespeople for Skydance, National Amusements and Paramount Global declined to comment.
Charter renewal
There’s also the issue of Charter‘s looming carriage deal with Paramount Global, which is about to run out in April, in line with people acquainted with the matter. This will not be guiding Redstone’s urgency for a sale, as a possible deal shall be reached long before an acquisition closes, but it surely’s definitely looming over the company’s future prospects.
While Comcast, the largest U.S. cable provider, and Paramount Global renewed their deal with little fanfare in December, Charter is a distinct animal. The second-largest U.S. cable operator struck a deal with Disney last yr that paved the way for Charter to start lopping off little-watched cable networks while directly selling subscription streaming services to its thousands and thousands of broadband customers.
Paramount Global charges $5.99 per 30 days for Paramount+ with promoting. Most of what airs on CBS and Paramount Global’s cable networks is out there on Paramount+. That offers Charter two benefits in a renewal deal.
First, Charter will likely argue Paramount Global has set a price of $5.99 for the value of all its cable networks and CBS. Charter can point to that as the ceiling price for what it’s willing to pay for Paramount Global’s linear channels.
Second, Charter now has some blackout leverage with consumers because they will point them toward Paramount+ as a comparatively inexpensive way of accessing Paramount’s content. Charter will make the same argument it did with Disney: The existence of the same content on each the streaming service and the linear channels is effectively double charging the consumer.
Bob Bakish, CEO of Paramount, speaks with CNBC’s David Faber on Sept. 6, 2023.
CNBC
Paramount Global probably cannot afford to lose carriage for the bulk of its networks with Charter, given Paramount+ continues to lose money. Paramount Global continues to be depending on its linear business, which earned $15 billion of its $22 billion in revenue in the first nine months of 2023 from traditional TV. Greater than $6 billion of that was from cable affiliate fees.
Bakish has all the time successfully reached renewal deals with the major pay TV distributors since taking up as CEO in 2019 and even dating back to his time running Viacom, starting in 2016. Still, given Bakish’s lack of leverage, he can have to accept lower affiliate fees or an agreement that devalues Paramount+.
Disclosure: Comcast owns NBCUniversal, the parent company of CNBC.
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