Paramount’s (PARA) stock closed down more than 8% on Thursday after a 16% surge the day prior following reports the company has entered into exclusive merger talks with David Ellison’s Skydance Media.
The timing of the discussions couldn’t be worse, according to one media mogul.
“First of all, it’s the worst time in the world to sell this thing,” IAC chairman and Fox founder Barry Diller said in an interview with CNBC on Thursday. “It is the perfect candidate for actually turning itself around but the idea that you ought to sell it? Whoever gets in that and whatever base they get in it for, there’s an enormous amount of work that has to take place.”
According to reports from the Wall Street Journal and Bloomberg, Paramount entered into exclusive talks with Skydance after declining a $26 billion all-cash offer, which included $14 billion worth of debt, for the entire company from private equity firm Apollo. (Disclosure: Yahoo Finance is owned by Apollo Global Management.)
Paramount has been bleeding money in its streaming business. Although losses have narrowed, the company still reported a direct-to-consumer (DTC) loss of $490 million in the fourth quarter. It’s also been plagued by plummeting linear TV revenue as more consumers cut the cord.
To combat the declines, Paramount has committed to various cost-efficiency plans, including layoffs, business restructurings, price hikes, and even a surprise dividend cut. But a potential sale has been on the table for months.
Skydance is aiming for a two-step deal targeting Paramount’s holding company, National Amusements (NAI). Shari Redstone currently serves as the president of NAI. She’s also the controlling shareholder of Paramount Global.
National Amusements owns approximately 10% of Paramount’s equity capital value and maintains 77% of voting shares — valued at around $1 billion.
According to the Journal, Redstone and Ellison have agreed to terms that would allow Skydance to purchase Redstone’s controlling stake. Skydance would then merge its production studio with Paramount’s — an important contingency to the deal, which must first be approved by an independent committee of directors at Paramount. It’s unclear what Ellison plans to do with the rest of the company.
Wall Street analysts remain skeptical that a Skydance deal can make it to the finish line.
“The more complicated the deal, the less likely it gets done,” Needham analyst Laura Martin told Yahoo Finance. “The Skydance deal with the two different pieces … that feels complicated.”
Doug Creutz, TD Cowen managing director, agreed, telling Yahoo Finance, “A purchase of NAI would allow somebody to control Paramount, [it] wouldn’t necessarily help current Paramount shareholders.”
Paramount has long been viewed as a potential acquisition target, primarily due to its small size relative to competitors. The company boasts a current market cap of just around $8 billion compared to Disney’s (DIS) $218 billion and Netflix’s (NFLX) $273 billion.
