It’s time to take a breather and look for a new beginning. That seems to be the motto for Paramount Global and its investors.
With news Tuesday that Shari Redstone has ended months of talks to acquire Paramount from a consortium led by Skydance Media and RedBird Capital without a deal, Wall Street analysts are debating, once again, the future of the entertainment giant and how to think about its stock. In early trading on Wednesday, it was down 2 percent at $10.82, near a 52-week low of $10.12.
National Amusements (NAI), which controls Paramount, said it “supports the recently announced strategic plan being executed by Paramount’s Office of the Chief Executive Officer, as well as their ongoing work and that of the company’s board of directors to continue exploring opportunities to drive value creation for all Paramount shareholders.” Skydance CEO David Ellison argued in an email to staff that “Skydance is stronger than ever because of you, and we are stronger because of this process.”
Not surprisingly, Wall Street pundits are beginning to weigh options for Paramount now that Skydance is out of the deal.
Guggenheim analyst Michael Morris on Wednesday cited reports that Redstone is now likely to pursue a sale of National Amusements independently. “Without the proposed merger with Skydance as part of the deal, Paramount looks increasingly likely to go it alone,” Morris argued.
That would mean pursuing strategies suggested by the three-person Office of the CEO, appointed when CEO Bob Bakish was ousted, including simplifying the company, transforming its broadcast strategy and seeking asset sales to to optimize the business mix and to pay the debt. Describing it as a “return to plan A,” he also said: “We expect investors to look to the second quarter results (likely in early August) as a key indicator of the early withdrawal of this plan and we anticipate additional details at that time.”
Others on the Street described similar expectations.
Redstone “now appears determined to either continue the status quo or divest itself of just its stake in NAI, handing the reins of its family empire to new administrators without delving into any broader plans or complicated that would involve other media companies or shareholders”. has written MoffettNathanson analyst Robert Fishman in a report titled “Door Number Three.”
He spent part of his note going through the business challenges and opportunities for Paramount, concluding that “its mix of assets presents in many ways a challenging hand to navigate the shifting media winds.” After all, “the vast majority of the company’s earnings before interest, taxes, depreciation and amortization (EBITDA) is still driven by a linear network portfolio that is unfortunately skewed (outside of CBS) to the general entertainment, content category which sees the most rapid decline.”
Fishman also weighed in on the company’s broadcast and film assets. “Paramount+ continues to burn money (although … cost cuts, if they materialize, could help),” he noted. “Pluto may hold a place within the broader AVOD/FAST connected TV advertising world, but its success (at least in part) cannibalizes linear TV advertising dollars.” And the studio unit? “The movie studio Paramount has managed to produce some respectable hits over the past few years, but production and financing deals limit many of the financial benefits from these successes,” noted expert MoffettNathanson.
His advice to investors: “If Ms. Redstone decides to further explore just selling NAI, Paramount investors will be forced to weigh in on the updated plan presented during last week’s annual meeting.” But details on that “remain scarce, with more promised during second-quarter earnings in August” from the Office of CEO Chris McCarthy, George Cheeks and Brian Robbins, Fishman explained. Highlights include “transformation[ing] streaming exploring strategic partnerships/joint ventures for Paramount+ and more aggressive licensing opportunities, streamlin[ing] the company with 500 million dollars of additional cost reduction, optimiz[ing] Shuffling Paramount’s assets while exploring sales to pay down debt.”
Fishman concluded that it was time to reconsider his attitude toward Paramount. “We upgraded Paramount from ‘sell’ to ‘neutral’ in January with an understanding that deal speculation would decouple the stock from the company’s fundamentals,” he wrote. “With any hope of a deal for Paramount’s independent shareholders now more likely in the rear-view mirror, we will revise our estimates to address the new annual meeting plan to determine our updated estimate.”
LightShed Partners analyst Richard Greenfield also suggested that staying on the sidelines might be the best tactic for now. His Wednesday report was aptly titled “Strange game, only winning move is not to play (for now).”
“We believe that National Amusements is keen to sell Paramount eventually. However, there are many … easy upsides to create value that do not require a sale today, and which would significantly improve Paramount’s balance sheet without a 12-month-plus regulatory review,” he argued. “As Paramount implements these strategic changes, we will gain much more clarity on the US regulatory situation based on the upcoming presidential election in November.”
Suggested Greenfield: “A Trump vs. Biden presidency could open up a much wider range of bidders for all or part of Paramount. We suspect the next 12-18 months are a ‘pause’ in Paramount’s M&A process, not the end.”
The expert had this opinion on why Redstone ended the Skydance talks: “Ultimately, we believe the legal risk of the proposed Skydance transaction turned out to be too high compared to National Amusements’ alternatives.”
So what next for Paramount? Greenfield suggested four areas of focus: new management, Paramount+ course correction, asset sales and the sale of a minority stake in NAI.
“We’d be surprised to see Paramount keep its three-person CEO office beyond the next few months,” the LightShed analyst said. “We suspect that Paramount will seek to appoint a dedicated CEO, with the current three CEOs reporting to the new CEO.” His leading candidate for CEO is current Paramount board member and former Viacom board member Charles Phillips. “Ironically, Phillips was previously a senior executive and board member of Oracle,” Greenfield noted. “We also expect current CFO Naveen Chopra to be terminated soon and replaced with someone from outside Paramount’s current executive ranks.”
The analyst has long suggested that Paramount should license its content to the highest bidder or seek a joint venture with another streaming player instead of trying to build Paramount+ alone. “The current strategy has no hope of creating a long-term sustainable and profitable business,” Greenfield wrote on Wednesday. “We expect an aggressive battle between Amazon Prime Video, Warner Bros. Discovery/Max and NBCU/Peacock to license Paramount content or form some form of joint venture with Paramount+.”
The expert also expects the Redstone family to look “to sell some of its controlling stake in National Amusements to a third party, potentially giving it a long-term path to control.” Selling a minority stake would avoid a lengthy regulatory review, he noted.
Finally, Greenfield sees room for deals to offload parts of Paramount itself. “There are significant potential asset sales that Paramount could pursue now, as well as closing down money-losing assets that former management refused to exit,” he suggested. “We expect Paramount to look at selling and leasing the Paramount stake, offloading local non-CBS television stations, closing money-losing businesses overseas. [which were pet projects of former CEO Bob Bakish, who previously ran Viacom International], and sell non-core assets, such as BET. We also wouldn’t be surprised to see Paramount sell Pluto TV.”
Meanwhile, The Third Bridge analyst Jamie Lumley shared this view on Skydance’s failed takeover bid: “As it became increasingly clear that Skydance intended to sell off assets following a merger, it appears Shari Redstone wanted more say over the final home of pieces of her media empire. Additionally, the complex nature of the proposed merger may have led to legal challenges from common stockholders and threatened its viability.”
Based on his conversations with industry insiders, the expert still sees potential for a sale, but in pieces. “It still makes more sense for Paramount to be sold piecemeal, given the challenges for each player in absorbing all of its various businesses,” Lumley wrote. But he did not endorse any of the leading candidates, instead offering: “The question of who is best positioned to benefit from this remains open to debate.”