Sony Won’t Submit Counter Bid for Paramount Global

Acquiring the entire media giant would be “risky” to its capital allocation strategy, Sony Group president, COO and CFO Hiroki Totoki tells analysts

sony-paramount-merger
Sony/Paramount merger

Sony Pictures Entertainment will not make a new offer for Paramount Global following the Hollywood studio’s $8 billion merger agreement with David Ellison’s Skydance Media.

During Sony Group’s quarterly earnings call on Wednesday, president, COO and CFO Hiroki Totoki said that an acquisition of Paramount “does not fit well with our strategy.”

“[Paramount] is quite large in size,” he added. “If we have to acquire the entire organization, it would be quite risky because our capital allocation itself, it may not be well fitted to our capital allocation strategy. That is the primary reason.”

In May, Sony made a joint $26 billion all-cash offer with Apollo Global Management to acquire Paramount. At the time, an individual familiar with the matter told TheWrap the bid was a starting point and non-binding. Under the initial deal terms Sony would’ve been the significant majority shareholder with operational control, while Apollo would take a minority stake. While the news initially boosted Paramount shares, the New York Times later reported that Sony and Apollo had backed away from the original offer.

The proposal also faced the prospect of potential regulatory scrutiny due to the Federal Communications Commission’s limits on foreign ownership and national TV station ownership. Apollo CEO Marc Rowen had shrugged off those concerns, calling the limits on laws “pretty straightforward” and noting that regulatory scrutiny is a “well trodden” path in an interview with CNBC in May.

The Skydance deal, which is expected to close in the third quarter of 2025 subject to regulatory approval and other customary closing conditions, includes $2.4 billion for National Amusements, including $1.75 billion for the equity and the assumption of $650 million in debt. Additionally, non-NAI shareholders will receive $4.5 billion and $1.5 billion in new capital will be used to pay down Paramount’s $14.6 billion in long-term debt and recapitalize its balance sheet.

New Paramount will have an enterprise value of $28 billion, while Skydance is being valued at $4.75 billion. Approximately $6 billion of the deal’s total financing is coming from David’s father and Oracle co-founder, Larry Ellison.

Class A shareholders can elect to receive $23 cash per share or 1.5333 shares of Class B stock of new Paramount. Class B shareholder can elect to receive $15 per share or one share of Class B stock of new Paramount, which is subject to proration if those elections exceed $4.3 billion in aggregate. If shares are elected over cash, reducing the cash required to under $4.3 billion, the $1.5 billion of cash going to Paramount’s balance sheet could grow up to a cap of $3 billion.  

Skydance’s consortium of investors, which include RedBird Capital Partners and the Ellison family, will control 70% of shares outstanding and have 100% voting ownership in new Paramount, which will remain public. Paramount’s non-National Amusements Class B shareholders will receive a 48% premium to the price of the stock as of July 1, while Class A shares will receive a 28% premium.

The deal also includes a 45-day go-shop provision, in which Paramount would pay a $400 million breakup fee in the event that the company receives a better offer from another bidder. That window, which expires Aug. 21 at 11:59 p.m., could be extended to Sept. 5 in the event of a “superior” proposal.

In addition to Skydance and Apollo, IAC chairman Barry Diller signed nondisclosure agreements with National Amusements to explore a possible bid, though he recently told CNBC that the bid is over, adding that it is “unwise to get in an auction with someone who has a pretty much unlimited balance sheet.”

Others who have expressed interest in Paramount include Allen Media Group founder Byron Allen, former Warner Music Group CEO Edgar Bronfman Jr. and “Baby Geniuses” producer Steven Paul. It is unclear if any of those parties will submit a counter bid before the go-shop window expires.

On Wednesday, Sony reported a 10% increase in operating profit, owing in large part to increases in gaming and music.

Though sales for the PS5 were down year-over-year, the sale of titles from first-party developers as well as network services — namely, the company’s PlayStation Plus subscription offering — accounted for a boost in gaming. The division saw a banked revenue of 864.9 billion yen in the quarter, 12% year-over-year increase. As for Sony’s music division, that was boosted by the release of Beyonce’s “Cowboy Carter” in March. Future & Metro Boomin’s “We Don’t Trust You” and SZA’s “SOS” also received shoutouts on the company’s earnings call. Sony’s music division saw a 23% increase compared to this time last year.

In the Studios business, sales grew 5% year-over-year to 337.3 billion yen due to the impact of foreign exchange rates, despite a decrease in U.S. dollar-based sales, primarily resulting from a decrease in the number of television programs delivered and theatrical releases. Operating income for the segment fell by 4.7 billion yen year over year to 11.3 billion yen, primarily due to the impact of the decrease in U.S. dollar-based sales.

In the first half of the calendar year 2024, theatrical box office revenue in the U.S. remained at a level approximately 20% lower than the previous year, primarily due to the impact of the strikes. However, the release of tentpole films from major studios has increased since June and Sony expects box office revenue to gradually improve. For fiscal year 2024, Sony expects the studios business to post sales of 1.520 trillion yen, an increase of 40 billion yen from the previous forecast and operating income to be 125 billion yen, an increase of 5 billion yen.

The company also revealed that its anime streaming service Crunchyroll has surpassed 15 million monthly subscribers. The service, which signed a global distribution agreement with Amazon Prime Channels, launched on the platform in the U.S. and U.K. last year and has rolled out in Brazil, France, India and other countries since April.

Shares of Sony jumped 2.9% during Wednesday’s trading session.

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