Shari Redstone, president of National Amusements, speaks at the WSJ Tech Live convention in Laguna Beach, California, on Oct. 21, 2019.
Mike Blake | Reuters
Paramount Global nonexecutive chair and controlling shareholder Shari Redstone has been speaking to potential consumers curious about buying her media firm — or components of it for years — however the seriousness of these discussions has heightened in latest months.
There are sector-related causes for why a deal appears more and more pressing. The media world is altering quickly. During the Covid-19 pandemic, legacy media firms seemingly had a path to progress by launching their very own streaming providers. But Wall Street turned its collective again on that narrative after Netflix growth stalled in 2022, leaving firms equivalent to Paramount Global twisting in the wind.
Paramount Global’s flagship streaming service, Paramount+, has efficiently collected 63 million subscribers, and it is nonetheless rising. But it is also nonetheless dropping cash, albeit not as a lot because it used to. Third-quarter streaming working losses have been $238 million. A yr in the past, they have been $343 million.
Without a transparent progress narrative, Paramount Global has struggled as a publicly traded firm. Shares are down 56% in the previous two years. This has piqued the curiosity of some non-public fairness companies and different potential consumers, together with David Ellison at Skydance Media and media mogul Byron Allen.
If Paramount Global — which owns Paramount Pictures, CBS, cable networks equivalent to Nickelodeon and Comedy Central, and mental property equivalent to “Star Trek” and “SpongeBob SquarePants” — is withering as a publicly traded firm, maybe taking it non-public or promoting a few of the property for components makes extra sense.
Redstone has private causes for contemplating promoting now, too. She has lengthy had an energetic curiosity in Jewish causes, together with having served on the board of Combined Jewish Philanthropies.
Redstone’s concentrate on preventing antisemitism has elevated since the Oct. 7 Hamas terrorist assault on Israel, which killed about 1,200 people, in accordance to individuals accustomed to Redstone’s pondering.
“Look, I’m not doing well, to be honest,” Redstone told The Hollywood Reporter in October. “I think there are no words to describe what took place, and all I do every day is try to do something that’s going to make a difference and help people.”
President of National Amusements Shari Redstone arrives at the annual Allen and Co. Sun Valley media convention in Sun Valley, Idaho, on July 5, 2022.
Brendan Mcdermid | Reuters
Then there is a vital monetary consideration associated to National Amusements Inc., or NAI, the holding firm 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 straight or not directly by subsidiaries owns 77% of the Class A voting inventory of Paramount Global and 5.2% of the Class B frequent inventory, constituting about 10% of the general fairness of the firm.
According to tax legislation, Shari Redstone should pay taxes on the shares tied to their worth at the time of her father’s demise. That quantities to greater than $200 million, in accordance to an individual accustomed to the matter.
Redstone has deferred the tax invoice for 10 years, till 2034, and solely owes about $7 million this yr, mentioned the individual, who requested not to be named as a result of the particulars are non-public. Still, the looming tax fee, together with an extra $37 million debt payment due to Wells Fargo in March, might be compelling motivation to sell off National Amusements for money, quite than a commerce of fairness with a strategic associate.
National Amusements will make its March fee on time, in accordance to 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 continue to take steps to improve our financial position including through debt reduction with a meaningful paydown in March,” the spokesperson mentioned.
The right form of deal
Redstone’s diversified motivations for promoting imply she’s on the lookout for the right form of deal, at the right value — and to date, she has had choices.
Warner Bros. Discovery has held preliminary talks to purchase Paramount Global. While Warner Bros. Discovery board member John Malone suggested in an interview with CNBC in November that Paramount Global might be a future distressed asset, that destiny may be averted if CEO Bob Bakish could make Paramount+ worthwhile.
There might be structural points with a Warner Bros. Discovery deal, by way of a cash-stock break up, together with how a lot debt a mixed firm would need to carry. It’s additionally doable Warner Bros. Discovery could select to wait to see if Comcast is keen to half with NBCUniversal.
In early talks with consumers, Redstone has pushed for a excessive premium for each National Amusements and Paramount Global, in accordance to individuals accustomed to the matter. Paramount Global has a market capitalization of almost $10 billion and about $13 billion of web debt.
Redstone additionally has fiduciary duties as Paramount Global’s nonexecutive chair. If she agrees to sell both National Amusements or all of Paramount Global, she’ll want purchase in from different buyers.
Banker Byron Trott, who is serving to Redstone navigate sale talks, has lengthy been an advisor for Warren Buffett, whose Berkshire Hathaway is Paramount Global’s largest Class B shareholder.
No deal is imminent, mentioned individuals accustomed to the course of. As CNBC reported last month, Skydance is curious about buying NAI as a part of a two-step transaction that might contain merging Skydance with Paramount Pictures.
Talks are additional together with Redstone concerning NAI than they’re with Paramount Global, two of the individuals mentioned. Still, Skydance is solely curious about buying NAI if it may possibly get a deal executed with Paramount Global, CNBC reported in January.
Spokespeople for Skydance, National Amusements and Paramount Global declined to remark.
Charter renewal
There’s additionally the concern of Charter‘s looming carriage deal with Paramount Global, which is set to expire in April, in accordance to individuals accustomed to the matter. This might not be guiding Redstone’s urgency for a sale, as a possible deal shall be reached lengthy earlier than an acquisition closes, however it’s actually looming over the firm’s future prospects.
While Comcast, the largest U.S. cable supplier, and Paramount Global renewed their deal with little fanfare in December, Charter is a unique animal. The second-largest U.S. cable operator struck a deal with Disney final yr that paved the method for Charter to start lopping off little-watched cable networks whereas straight promoting subscription streaming providers to its tens of millions of broadband prospects.
Paramount Global expenses $5.99 per 30 days for Paramount+ with promoting. Most of what airs on CBS and Paramount Global’s cable networks is obtainable on Paramount+. That offers Charter two benefits in a renewal deal.
First, Charter will possible argue Paramount Global has set a value of $5.99 for the worth of all its cable networks and CBS. Charter can level to that as the ceiling value for what it is keen to pay for Paramount Global’s linear channels.
Second, Charter now has some blackout leverage with shoppers as a result of they’ll level them towards Paramount+ as a comparatively cheap method of accessing Paramount’s content material. Charter will make the identical argument it did with Disney: The existence of the identical content material on each the streaming service and the linear channels is successfully double charging the shopper.
Bob Bakish, CEO of Paramount, speaks with CNBC’s David Faber on Sept. 6, 2023.
CNBC
Paramount Global in all probability cannot afford to lose carriage for the bulk of its networks with Charter, given Paramount+ continues to lose cash. Paramount Global is nonetheless depending on its linear enterprise, which earned $15 billion of its $22 billion in income in the first 9 months of 2023 from conventional TV. More than $6 billion of that was from cable affiliate charges.
Bakish has at all times efficiently reached renewal offers with the main pay TV distributors since taking up as CEO in 2019 and even relationship again to his time operating Viacom, starting in 2016. Still, given Bakish’s lack of leverage, he could have to accept decrease affiliate charges or an settlement that devalues Paramount+.
Disclosure: Comcast owns NBCUniversal, the mother or father firm of CNBC.
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