The sale of Paramount Global is almost over, much like "Thelma & Louise." Shari Redstone, the biggest shareholder, would be able to walk away with the spoils and leave other contenders in the dust due to a complicated deal with production company Skydance Media. Other investors are attempting to stay afloat even if they are aware that they are only going along for the ride.
With her National Amusements platform, Redstone, whose late father Sumner founded the Paramount business, secured 77% of the vote. Any other investor in the CBS program and owner of SpongeBob SquarePants is only an observer. As reported by the Wall Street Journal, the proposed agreement called for Skydance to purchase National Amusements for two billion dollars in cash and Paramount to purchase Skydance for five billion dollars in shares.
It is understandable that independent investors are not impressed. After falling 24% so far this year, Paramount shares surged late on Thursday in response to a New York Times story claiming that buyout firm Apollo Global Management, which Paramount had previously rejected, was in discussions with Sony Entertainment about preparing a new bid.
It's likely that stockholders of Paramount would not suffer financially from a Skydance transaction. Using LSEG statistics, let's assume that Skydance is valued at seven times EBITDA, which is consistent with Paramount, and that the combined business would make $3.5 billion in profit. It would be worth roughly $11 per share after debt repayment, which is where Paramount was trading on Thursday.
But this arrangement would also result in significant dilution. In order to pay the price tag, Paramount must issue the equivalent of 75% of its common stock. It also doesn't have immediate benefits. Furthermore, Wells Fargo analysts speculate that Skydance's EBITDA might be as low as 200 million dollars, indicating a 25-fold valuation multiple. Together with a multibillion-dollar capital infusion from Skydance's backers, they also project cost reductions of 1.2 billion dollars, which would aid in closing the gap. Larry Ellison, the founder of Oracle, might be involved. David, his son, is the owner of Skydance.
Regarding value creation, the entire transaction seems unduly complex and dubious. Apollo, on the other hand, has made a straightforward offer of $26 billion in cash. Equal value for voting and non-voting shares suggests $21 per share, which is double where Paramount trades.
Several investors are attempting to lead Paramount in the correct direction. There is increasing pressure since four Paramount board members have chosen not to run for reelection, and some shareholders are seeking to be given a vote on any potential deal. If they are successful, the outcome ought to be more uplifting.