Shares of Paramount are set to open higher Friday after long-awaited FCC approval for its merger erased a big question mark hovering over the company’s future, but amid ongoing uncertainty about its strategic plans under Skydance Media.
The stock is up about 1% ahead of the open at $13.40. The deal calls for David Ellison’s company to pay $4.5 billion to buy out a chunk, but far from all, of the Class B shares for $15 each.
Federal Communications Commission approval — authorizing the transfer of 28 licenses for Paramount owned and operated CBS stations to the Skydance-led ownership group — was the key last step to an official close, which is expected over the next few weeks.
“Now that the long, drawn-out sale process is finally nearing its end, Skydance leadership is poised to take control. With that, the real work begins — rebuilding Paramount, addressing the critical strategic questions ahead, and charting a path toward a more sustainable and competitive future,” said MoffettNathanson analyst Robert Fishman in an early reaction.
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“With closure of the deal now assured, we expect investor attention to turn to new ownership’s plans to improve profitability at the combined company,” says TD Cowen’s Doug Creuz. Earnings season is underway. It’s not clear whether the deal will be closed before Paramount’s (still unannounced) Q2 reporting date, likely in early August, Creuz noted, but we certainly expect to receive at least some clarity on plans by the Q3 reporting date in November. The company also needs to find a full-time replacement for recently-departed chief financial officer Naveen Chopra, which should come with a formal org chart at the close.. Andrew Warren is currently serving as interim CFO.
The most pressing question for most is what new ownership plans to do with Paramount’s linear networks. Comcast and Warner Bros. Discovery are spinning them out and there is a clear opportunity to improve Paramount’s growth profile by letting those assets go.
“On the other hand, we suspect the Ellisons did not purchase Paramount in order to break it up for parts,” said Creuz. He has a “hold” rating on the stock.
Paramount like the rest of the media industry still faces the decline of its linear assets and The key question is whether the pace of linear erosion can slow enough to give its DTC strategy time to scale. “We remain eager to learn whether Skydance intends to stay in the cable network business, or whether a spin and/or possible combination with other portfolios is on the table,” wrote Fishman.
Sports rights are a question, most immediately the NFL, which includes a change-of-control clause in its Paramount contract that will triggers an early renegotiation once the Skydance deal closes. “We do not anticipate the league forgoing an opportunity to extract greater value from its current partners. However, this could mean either a larger annual payment or likely some other type of value transfer,” he said.
Analysts are eager for the merged company’s streaming strategy to come into focus with Paramount+ around external partnerships, bundles and licensing. Does Pluto “serve as an on-ramp to Paramount+, or is it positioned for a potential sale? Will there be a meaningful step-up in content investment?” asked Fishman.
If, or how much, will Skydance will ramp up overall content spending in a way that the debt-constrained Shari Redstone-owned company could not?
he deal will see the Ellison family, with Gerry Cardinale’s RedBird Capital, acquire Redstone’s controlling interest in Paramount, a media giant assembled over decades by her father, the late Sumner Redstone. Redstone’s interest in Paramount is held through her family holding company National Amusements, which Skydance will acquire for $2.4 billion.
It’s a complex operation with a much smaller private company going after a much bigger, publicly traded entity. Skydance is also offering $4.5 billion in cash to other Paramount shareholders to acquire some Class A and Class B shares at, respectively, $23 and $15.
The FCC approved the deal after a review of over 250 days and amid plenty of controversy as Present Donald Trump simultaneously sought, an achieved, a settlement in a lawsuit against CBS News and 60 Minutes.
It will see the Ellison family, with Gerry Cardinale’s RedBird Capital acquire Redstone’s family holding company National Amusement, which holds a controlling interest in Paramount, for $2.4 billion. Skydance is also offering $4.5 billion in cash to other Paramount shareholders to acquire some Class A and Class B shares at, respectively, $23 and $15.
Paramount to acquire Skydance in an all-stock merger that values the company at $4.75 billion. At the close, the Skydance investor group will own 100% of New Paramount Class A Shares and 69% of outstanding Class B shares — or about 70% of the pro forma shares outstanding.