It seems as if Paramount Global (PARA +0.00%) (PARA.A +0.00%) shareholders can't catch a break. There are at least two parties looking to buy the meandering media mogul, but it's still somehow a market laggard. Paramount stock is trading 13% lower in 2024, off a blistering 44% over the past year.
The buyout interest puts a floor in the stock, but why is the ceiling shrinking? This isn't a stock. It's a trash compactor. Paramount has a lot to do before its brittle bones start to crack under the pressure. Let's size up where we are after a whirlwind few weeks of buyout activity. It's still not too late for this script to wrap up with a happy ending.
NASDAQ: PARA
Key Data Points
Beam me up
The first suitor to show up on Paramount's porch was David Ellison's Skydance. It makes sense. Ellison comes from financial royalty. Larry Ellison is his dad. However, the younger Ellison earned his keep in Hollywood. Skydance has helped produce some of Paramount's biggest hits in recent years including Top Gun: Maverick and some of the more recent installments in the Mission Impossible and Star Trek franchises.
Skydance didn't have the means or desire for a traditional buyout. Its two-pronged approach would begin by warming up to Shari Redstone's National Amusements, owner of 5% of Paramount stock but a controlling 77% stake of the preferential voting shares. The second step would be to orchestrate a takeover of the entire company. The two parties entered into a period of exclusive buyout negotiations, but that window came to a close over the weekend.
Skydance and Paramount can continue to come to some form of arrangement, but now there's another suitor knocking on the door as the lemonade swirls. Sony (SONY 0.47%) and private equity giant Apollo (APO +4.43%) are teaming up for a more conventional acquisition valued at $26 billion. The good news is that this would likely be a financially superior deal for current shareholders than the potentially dilutive Skydance proposal. However, it also would take longer to close and with some stiff regulatory hurdles to clear.
Sony's presence more than Apollo's would open the combination up to antitrust scrutiny. Some assets from either entertainment giant would have to sold off, and that's if the deal itself is approved.
Image source: Getty Images.
This tape will self destruct in five quarters
Time isn't on Paramount's side. It posted problematic financial results last week. Revenue rose just 6%, as a 24% top-line surge in its profitless streaming business was held back by low single-digit growth for its TV media and filmed entertainment segments. It has fallen well short of analyst revenue targets in back-to-back reports. Its operating and reported losses are improving, and Paramount did manage to generate positive free cash flow in the quarter. However, you don't show your CEO the door last week or slash your dividend by 79% the way it did last year if the future is promising.
The future is fuzzy. Growing its audience for Paramount+ and other direct-to-consumer platforms is coming at the expense of the rest of its business. Even the typically patient Warren Buffett had enough. He started lightening his stake in Pararmount last year. The entire remaining position was unloaded in the first quarter of this year.
This doesn't mean that Paramount is toast. It's better for a struggling media stock to have at least two interested buyers than just one or none at all. There aren't too many other parties likely to crash the porch of suitors here. Larger media companies and even larger consumer tech behemoths that could benefit from Paramount's catalog aren't likely to even attempt a deal that isn't likely to pass a regulatory sniff test.
The ideal solution would be for Paramount to save itself, but that's the kind of fresh thinking that doesn't typically come from inside a company with a thorny ownership structure. In the movies the easy way out of a trash compactor is to jam it and pry your way out. Your move, Paramount.
