Rolling the End Credits on Paramount’s Legacy: The Culmination of Negotiation Efforts between Paramount and Skydance

The most watched show of the season might be the drawn-out roller coaster of negotiations between Paramount and Skydance. The two entities entered into negotiations to merge in April 2024. (Benjamin Mullin et al., New York Times). However, the parties have run into roadblocks, including shareholder interest issues and other prospective buyers. Id. On June 11, 2024, Paramount’s majority shareholder rejected a previous deal (the “June 2024 Deal”), but by July 3, the parties renewed efforts to make the relationship work. Id. This post reviews the current situation Paramount finds itself in, its desperate attempts at corporate marriage, why previous negotiations have fallen flat, and what the newest rendition of a deal includes.

Most Paramount shareholders, though pushing for a deal, are at the mercy of one shareholder’s needs. Shari Redstone is the majority stakeholder of Paramount, “the parent company of CBS, MTV and Nickelodeon.” (Meg James, Los Angeles Times). Redstone is the daughter of media tycoon Sumner Redstone, who passed away in 2020. Id. Redstone holds 77% of Class A voting stock in National Amusement Inc. (NAI), who is the current holding company that controls Paramount. (Josh Kosman, New York Post). Skydance, Paramount’s hopeful partner, is a newer movie studio, known for “Top Gun: Maverick” and backed by David Ellison, the son of Oracle founder, Larry Ellison. (Benjamin Mullin et al., New York Times).

The rise of streaming has seemingly destroyed the cable television and movie market.  This rise has left many media companies reporting negative returns for the last few years, Paramount included. (Dan Gallagher, The Wall Street Journal). In December 2019, CBS and Viacom merged under the Paramount name. Id. Shari Redstone made this strategic move to pull the media empire back together after her father had split them up in 2006. (Benjamin Mullin et al., Wall Street Journal). The deal was supposed to be Redstone’s biggest success, as both entities had strong assets for direct-to-consumer streaming offerings, but has shown itself to be anything but successful, but instead, “Paramount has lost 71% of its stock value since the close of the deal.” (Dan Gallagher, The Wall Street Journal). According to data from S&P Global Market Intelligence, this is the equivalent of $17.7 billion in lost market value. Id.

The devastating decrease in stock value led Paramount to make desperate attempts to sell since January 2024. (Benjamin Mullin et al., New York Times). Subsequently, Paramount has attempted to close a deal with Skydance, but has also entertained other options — including Apollo Global Management and Sony Pictures Entertainment. Id.

The June 2024 Deal between Paramount and Skydance was the closest the two had previously come to a deal. The two entities agreed on the “economic terms but not on the non-economic terms of the deal.” Id. Such non-economic terms included indemnification, as the Redstone family has been looking to shield itself from shareholder lawsuits related to the deal. (Meg James, Los Angeles Times). Some of the more vocal nonvoting shareholders have “long objected to the Ellison proposal, saying it benefited the Redstone family at the expense of everyday investors.” Id. Additionally, Redstone was reportedly unhappy with Skydance’s value of NAI at $1.7 billion. (Benjamin Mullin et al., New York Times). Shareholders responded to Redstone pulling the deal with serious concern, as they saw the deal as their chance at “some payoff for the wider base of shareholders.” (Dan Gallagher, The Wall Street Journal).

In the background of the deal, turmoil in the CEO’s office of Paramount adds to shareholder concern. Id. In April, Paramount’s board appointed a three-person “Office of the CEO,” which consists of a CEO of Showtime/Paramount Networks & MTV, a CEO of CBS, and a CEO of Paramount Pictures and Nickelodeon. (Todd Spangler, Variety). This strategy has received criticism for its potential lack of sustainability. Id. The CEO uncertainty and loss of the June 2024 Deal led some shareholders to cut their losses, resulting in Paramount’s stock value falling more than 16% in June. (Benjamin Mullin et al., New York Times).

The Office of the CEO continues to explore alternatives, including other potential buyers and a plan to cut $500 million in costs in the coming years, though the Office has not moved forward with any of these alternatives. Id. In the first week of July, just weeks after Redstone refused the June 2024 Deal, Paramount and Skydance preliminarily agreed upon a new agreement. Id. Sources close to the negotiations say the parties hope to finalize their relationship before the start of the Allen & Co’s annual summit “of technology and media tycoons in Sun Valley, Idaho...” (Dawn Chmielewski, Reuters). Major terms of the new deal include an offer from Skydance to pay $1.75 billion for NAI, as opposed to the $1.7 billion in the previous rendition. Id. The deal also would give NAI greater indemnification protection and a “45-day ‘go shop’ period” where Paramount can explore other options. (Benjamin Mullin et al., New York Times).

Perhaps most importantly for shareholders, under the new deal, Skydance has agreed to provide “a $1.5-billion cash infusion to help Paramount pay down some of its debt” and to set aside $4.5 billion to buy out nonvoting Class B shareholders, who hold about 90% of the economic stake. (Meg James, Los Angeles Times). News of the deal sent Paramount shares through the sky by 7%, to nearly $11.46. Id. Mario Gabelli, a voting shareholder in NAI, praised the way Redstone worked through the negotiation saying that though he does not know without seeing the structure of the deal what he will do, the new deal “seems like a better one for minority shareholders.” (Josh Kosman, New York Post). Gabelli’s math estimates about $20 per share. Id. He is close in his evaluation, as the offer would allow nonvoting stock to cash out at around $15 per share and those with voting stock to cash out at $23 per share. (Benjamin Mullin et al., New York Times).

The Paramount board must approve any deal Redstone accepts. Id. A special committee of the Board met on Sunday, July 7 and signed the deal. Id. The next step is full board approval from Paramount, but the 45-day “go-shop” period leaves some questions remaining in shareholders’ minds. (Alex Weprin, The Hollywood Reporter). Finalizing this deal might prove more difficult than Redstone or Ellison expected. A class action lawsuit was filed on July 4, 2024, by Scott Baker, a shareholder who owns 40,000 shares of Class B stock. (Lucas Manfredi, The Wrap). The plaintiffs argue the deal does not include enough cash to account for the buyout of all of the non-NAI Class B shares; Baker said, “[t]hat payout is only worth $12.23 per Paramount Class B share… when the Merger closes, the non-NAI Class B shareholders will suffer $1.645 billion in damages.” Id. Concurrently, Apex Capital Trust, a company connected to Steven Weiss of Rubenstein Public Relations, seemingly made a $43 million all-cash bid as part of the “go-shop” period. (Dawn Chmielewski, Reuters). However, this offer comes with a caveat, as it is unclear to parties close to the negotiations how serious the bid is, which continues to leave Paramount in a place of limbo. Id.

If the deal is finalized, it will make David Ellison arguably one of the most powerful people in Hollywood, and he is armed with a plan to bring in his own cast and make some major changes. (Benjamin Mullin et al., New York Times). News of a deal might have been the best-case scenario for shareholders and though they are waiting on the structure of the deal to be announced, they will have an opportunity to decide whether to stay, cash out, or even sue. Redstone’s move, however, marks the end of an era for her family and cable network television—the effect of which has yet to be seen for shareholders, behemoth streaming companies like Netflix, and the entertainment industry at large.