Unbundling Paramount is better for almost everyone
The author is a Reuters Breakingviews columnist. The opinions expressed are her own.
By Jennifer Saba
NEW YORK, March 22 (Reuters Breakingviews) -Paramount Global PARA.O would be better served by taking the hard road. The media company behind cable network MTV and the Mission: Impossible franchise has received an $11 billion bid from buyout shop Apollo Global Management APO.N for its film and television studios. Controlling shareholder Shari Redstone is instead eyeing a deal for her stake. That’s a neat solution for her; for other investors, though, a breakup offers more.
Paramount is in trouble. Its traditional cable business has been undermined by Netflix NFLX.O, against which its own streaming service Paramount+ is comparatively small potatoes. Worse is its heap of debt, some $12 billion net of cash, making an outright takeover risky for potential media-industry buyers - like one-time suitor Warner Bros Discovery WBD.O, which has broken off its pursuit, CNBC reported.
Those woes affect Redstone’s National Amusements, which holds a 77% voting stake in Paramount and is itself groaning under high leverage. Extricating her family empire from the situation in one clean sweep holds obvious appeal. Indeed, Redstone favors a proposal to sell a majority of her privately held firm - and, with it, voting control of Paramount - to David Ellison’s production company Skydance, according to the Financial Times. What independent shareholders get from such a deal, likely a prelude to merging Skydance and Paramount, is unclear, whether in terms of diversifying a struggling business or giving them cash.
Apollo’s bid, reported by the Wall Street Journal on Wednesday, offers another path. Morgan Stanley estimates Paramount’s TV and movie studios together will generate approximately $650 million in EBITDA this year, implying Apollo would be forking over a hefty 17-times multiple. Taxed at the standard 21% rate, the offer would net Paramount nearly $9 billion of cash.
Crucially, that gives the company options. If used to pay down debt, the windfall would bring Paramount’s leverage down considerably to 1.5 times EBITDA, Morgan Stanley reckons. That might make remaining assets, like its CBS broadcast network or Nickelodeon cable channel, easier to swallow for buyers such as declared suitor Byron Allen or TV groups like Tegna TGNA.N. Alternatively, cash could be returned to shareholders.
There are drawbacks. Paramount would likely have to license back content to its networks. Taking as a guide Warner Bros Discovery, whose internal sales are over 15% of total studio revenue, implies roughly $1 billion in fees. But it sets the floor for a valuation and stabilizes the remaining business. It isn’t the easiest route for anyone - but it’s the best deal for almost everyone.
CONTEXT NEWS
Private equity firm Apollo Global Management has offered to buy Paramount Global’s film and TV studios for $11 billion, the Wall Street Journal reported on March 20, citing people familiar with the offer.
Paramount’s controlling shareholder Shari Redstone favors an alternative deal with David Ellison’s production company Skydance, which is considering acquiring a majority of Redstone’s investment vehicle National Amusements, according to a March 21 Financial Times report. NAI controls 77% of Paramount’s voting shares.
Graphic: Paramount's mountain of debt towers over peers Paramount's mountain of debt towers over peers https://reut.rs/3x7cpLU
Editing by Jonathan Guilford and Sharon Lam
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