Shares of Paramount ticked lower on Friday following news that the FCC has cleared the way for the closing of the media giant’s $8 billion merger with Skydance Media.
“Now that the long, drawn-out sale process is finally nearing its end, Skydance leadership is poised to take control,” MoffettNathanson analyst Robert Fishman wrote in a note to clients on Friday. “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.”
Fishman expects that the Skydance deal will officially close in the next few weeks, if not sooner. But he noted that Wall Street still has several critical questions that must be addressed before being able to confidently forecast the trajectory and pace of New Paramount’s cash flow and earnings. Among them are Skydance and RedBird Capital Partners’ future plans for Paramount+ and the linear network portfolio, content strategy and investment and sports rights renewals.
“We think the most pressing question is what new ownership plans to do with Paramount’s linear networks, given the decisions by Comcast and Warner Bros. Discovery to spin their linear assets out (or at least some of the assets in the case of Comcast),” TD Cowen analyst Doug Creutz wrote in a Friday note to clients. “There is a clear opportunity to improve Paramount’s growth profile by letting those assets go, and potentially create shareholder value downstream via a linear network roll-up; on the other hand, we suspect the Ellisons did not purchase Paramount in order to break it up for parts.”
Creutz expects that Skydance and RedBird should offer some more concrete updates on its plans by the time Paramount reports third quarter earnings around November. He added that New Paramount needs to find a full-time replacement for former chief financial officer Naveen Chopra, who is being replaced by Andrew Warren in the interim.
Under the two-step deal, Skydance is set to acquire controlling shareholder Shari Redstone’s holding company National Amusements, which controls 77.4% of the Paramount Class A common stock outstanding and approximately 9.5% of the overall equity of the company, before merging with the Hollywood studio.
The $8.4 billion deal provides $2.4 billion for Redstone, $4.5 billion to non-NAI Paramount shareholders and an additional $1.5 billion in new capital to help pay down debt and recapitalize the company’s balance sheet. Skydance’s investor group will own 100% of New Paramount Class A common stock and 69% of outstanding Class B common stock, or approximately 70% of the pro forma shares outstanding.
In a call with Wall Street last year, New Paramount CEO David Ellison and president Jeff Shell outlined a vision to turn the struggling media conglomerate into a technological leader in the entertainment space.
That plan included rebuilding the Paramount+ platform to increase time spent, offer subscribers improved recommendations and reduce churn, utilizing AI to “turbocharge content creation capabilities” and lower costs and leveraging Skydance and Paramount’s combined portfolio of animation and sports content.
At the time, Shell and Ellison said they would also explore potential partnerships and content licensing opportunities and that asset sales remained an option on the table. Shell previously told reporters that CBS would remain a “cornerstone asset” within the company and touted Pluto TV as a “very strong and powerful asset.” RedBird’s Andy Gordon added that there would be opportunity to drive “a lot more efficiency” and “further cash flow generation” in Paramount+ and Pluto.
Executives have identified at least $2 billion in cost cuts, 50% of which they said would be implemented within the first year of the merger, including $500 million in cost savings already generated by Paramount’s co-CEOs George Cheeks, Chris McCarthy and Brian Robbins. McCarthy is set to exit following the Skydance deal’s closing. Reps for Robbins and Cheeks declined to comment.
Paramount’s cuts thus far have included a 15% workforce reduction and the shuttering of Paramount Television Studios. In June, Paramount also said they would cut another 3.5% of the workforce. They also recently launched a review of its international pay TV strategy, which could see a potential reduction in its local cable channel footprint in international markets.
Other incoming changes will be the appointment of an ombudsman at CBS for at least two years to review complaints of bias and the end of diversity, equity and inclusion initiatives at the company, including the closing of its Office of Global Inclusion.
Shares of Paramount are up 23% year-to-date and 14% in the past year.
FCC Clears Paramount-Skydance Merger