Paramount, Skydance Exclusive Talks Window Likely to Close Without a Deal, So What Happens Next?

As the exclusive window for merger discussions between Paramount Global and David Ellison’s Skydance Media enters its final hours, the future of the company remains uncertain.

There has been no official decision on an extension on the exclusivity window between Skydance and Paramount, which is set to expire Friday night. Representatives for Paramount and Skydance declined to comment.

Paramount’s board faces three potential options now. It could carry on with negotiations with Skydance, a deal that has proven highly unpopular with shareholders. It could let the exclusivity deadline expire and pivot to consideration of a $26 billion all-cash joint bid by Sony and Apollo Global Management. Or it could go it alone under its new Office of the CEO after the resignation of CEO Bob Bakish.

The tough decision comes as Paramount shares have fallen 21.4% in the past year. Shares of the company fell over 7% during Friday’s trading session, closing at $12.88 apiece, above the 52-week low of $10.12 hit last month. Paramount’s market capitalization sits at $9.05 billion.

Under its two-step plan, Skydance would acquire Paramount through controlling shareholder Shari Redstone’s majority stake in National Amusements, which owns 77% of Paramount voting stock. The second step would see Skydance and Paramount merge to create a combined company valued at around $5 billion. Earlier this week, Skydance submitted a revised, sweetened offer — saying it would add a $3 billion cash injection and premium for non-voting class B shares  — in an effort to assuage minority shareholders’ concerns about the bid prioritizing Redstone at the expense of everyone else.

On Thursday, Sony and Apollo officially threw their hat in the ring with their joint, non-binding $26 billion all-cash offer for the company. The bid, which lifted shares 13%, would see Sony take a majority stake in the company with operational control, while the private equity firm would take a minority stake.

The horse race puts Paramount’s special committee of independent directors in a difficult position. They have a fiduciary responsibility to find the best value for shareholders and will likely need to explore Sony and Apollo’s bid before making a final determination.

“Under Delaware law, [the independent special committee] have to be proactive in going out and obtaining the best possible price for the shareholders,” Corey Martin, chair and managing partner of Granderson Des Rochers, LLP’s entertainment finance practice, told TheWrap. “The Apollo-Sony bid, at least on its face, would seem to be far superior for the shareholders. And with this bid, those Revlon duties that attach to Paramount’s board are definitely applicable.”

Redstone, who has signaled a preference for a deal that would keep the company’s assets intact as opposed to breaking them up, could potentially veto the Sony-Apollo offer. That would likely set off a wave of shareholder lawsuits. But the Sony-Apollo bid faces potential regulatory scrutiny.

“Given the regulatory hurdles posed by studio and TV station consolidation and foreign ownership, the regulatory approval process would take at least 12 months and potentially far longer if the administration turns over in November,” Lightshed Partners analyst Rich Greenfield wrote in a blog post on Friday. “The deal can be structured to be approved, but there can be no certainty and it will be a lengthy and painful process.”

Citigroup analyst Jason Bazinet estimates that Skydance’s deal would be worth $13 per Paramount share, while Apollo would be $19 per share. But he sees a 90% probability of the Skydance deal going through, versus a 10% probability of Apollo and Sony, given NAI’s control of voting shares.

However, Greenfield sees a third alternative as the most likely: Paramount going it alone under its new management structure

In that scenario, Paramount could focus on reorienting its business and revisit M&A later in the year or in 2025, especially when there is greater political and regulatory visibility, Greenfield added. He said it’s also conceivable that National Amusements could sell a minority stake later this year.

Paramount’s Office of the CEO, comprised of CBS CEO and president George Cheeks, Paramount Media Networks CEO and president Chris McCarthy and Paramount Pictures and Nickelodeon CEO and president Brian Robbins, is in the process of putting together a long-term strategic plan for the company.

Greenfield believes that Paramount needs to scale back its investment in Paramount+ and license its content to a third party like Max, Peacock or Hulu.

“We also believe there are significant asset sales possible that Paramount can now pursue, as well as shuttering money-losing assets that former management refused to exit,” Greenfield said. “If Paramount gets involved in a lengthy M&A process without certainty of approval, they will have delayed the strategic moves [that are necessary] and be in far worse balance sheet shape in 12-18 months if the deal fails to close. No break-up fee can compensate for that.”

While some companies like Netflix have found success with a co-CEO model, the track record for success has been mixed.

“The number of companies that have co CEOs, two CEOs or a very strong executive president and a CEO in the past 20, 30 years is less than 100 companies,” Stefano Bonini, an associate business professor at Stevens Institute of Technology, told TheWrap. “Some companies have performed well and other companies have performed horribly. It’s never a good decision when it’s taken at the rush of the moment unless it’s temporary.”

Bonini points out that Paramount’s new executive trio “seems to be largely overlapping” in terms of their skill sets, which he warned could potentially increase the chance of fights and strategic conflict in a company that is already facing challenges, including a declining linear business, unprofitable streaming business and $14.6 billion in long-term debt.

“If the Skydance deal doesn’t go through, an Apollo transaction seems like the next logical step,” he added. “It wouldn’t be particularly attractive for Redstone, but I don’t see three CEOs running a company effectively after there’s been talks and talks and talks of a merger.”

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