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It’s time to take a break and look for a fresh start. This seems to be the motto of Paramount Global and its investors.
With Tuesday’s announcement that Shari Redstone ended without a deal months-long discussions about a takeover of Paramount by a consortium led by Skydance Media and RedBird Capital, Wall Street analysts are once again debating whether the future of the entertainment giant and how to think about it. its stock. In early trading Wednesday, it was down 2% at $10.82, close to its 52-week low of $10.12.
Son National Amusements (NAI), which controls Paramount, said it “supports the recently announced strategic plan executed by Paramount’s Office of the CEO as well as their ongoing work and that of the company’s board of directors to continue to explore value creation opportunities. creation for all Paramount shareholders. Skydance CEO David Ellison said in an email to staff that “Skydance is stronger than ever because of you, and we are stronger because of this process.”
It’s no surprise that Wall Street experts have started analyzing options for Paramount now that Skydance is no longer involved in the deal.
Guggenheim Museum analyst Michael Morris On Wednesday, reports emerged that Redstone would now likely pursue the sale of National Amusements on a standalone basis. “Without the proposed merger with Skydance as part of the deal, Paramount appears increasingly likely to go it alone,” Morris argued.
That would involve following strategies outlined by the three-person CEO office appointed when CEO Bob Bakish was ousted, including streamlining the company, transforming its streaming strategy and seeking asset sales for optimize the commercial mix and repay debt. Calling it a “return to Plan A,” he also said: “We expect investors to view second-quarter results (likely in early August) as a key indication of early traction for this plan and we anticipate additional details to follow.” that time. »
Others on the street expressed similar expectations.
Redstone “now appears determined to either maintain the status quo or divest only of his stake in NAI, handing the reins of his family’s empire to new stewards without embarking on a larger or more complex plan that would involve other media companies or shareholders,” wrote MoffettNathanson analyst Robert Fishman in a report titled “Gate Number Three.”
He spent part of his note reviewing Paramount’s business challenges and opportunities, concluding that its “mix of assets in many ways presents a challenge to navigating the changing winds of media.” After all, “the vast majority of the company’s earnings before interest, taxes, depreciation and amortization (EBITDA) is still driven by a linear network portfolio that is unfortunately skewed (aside from CBS) toward general entertainment, the category content that generates the most revenue. rapid decline. »
Fishman also weighed in on the company’s streaming and movie assets. “Paramount+ continues to burn money (although…cost reductions, if they materialize, could help),” he noted. “Pluto might hold a place in the broader world of AVOD/FAST connected TV advertising, but its success (at least in part) cannibalizes linear TV ad dollars.” And the studio? “The Paramount movie studio has managed to produce several respectable hits in recent years, but production and financing agreements limit much of the financial benefits of these hits,” the MoffettNathanson expert pointed out.
Her advice to investors: “If Ms. Redstone decides to further explore the sale of NAI alone, Paramount investors will be forced to weigh the updated plan presented at last week’s annual meeting.” But details on that “remain scarce, with more promises coming during second-quarter earnings in August” from the CEO’s office of Chris McCarthy, George Cheeks and Brian Robbins, Fishman said. Highlights include “transforming streaming by exploring strategic partnerships/joint ventures for Paramount+ and more aggressive licensing opportunities, streamlining the business with $500 million in additional cost reductions, optimizing the mix of Paramount’s assets by exploring divestitures to pay for it. reduce debt.
Fishman concluded that it was time to reconsider his position on Paramount. “We moved Paramount from ‘sell’ to ‘neutral’ in January, knowing that speculation about a transaction would detach the stock from the company’s fundamentals,” he wrote. “With any hope of a deal for Paramount’s independent shareholders now more likely in the rearview mirror, we will revisit our estimates heading into the new annual meeting plan to determine our updated valuation.”
LightShed Partners analyst Richard Greenfield also suggested that staying away might be the best tactic at the moment. His report on Wednesday was aptly titled “A strange game, the only winning solution is not to play (for now).”
“We believe National Amusements wants to eventually sell Paramount. However, there are many easy solutions to create value that do not require a sale today and would significantly improve Paramount’s balance sheet without a regulatory review lasting more than 12 months,” he argued. “As Paramount implements these strategic changes, we will gain much more clarity on the regulatory situation in the United States, based on the upcoming presidential election in November.”
Greenfield suggested: “A Trump versus Biden presidency could open up a much wider range of bidders for all or part of Paramount. We believe the next 12 to 18 months will be a “pause” in Paramount’s M&A process, not the end.
The expert explained why Redstone ended negotiations with Skydance: “Ultimately, we believe that the legal risk of Skydance’s proposed transaction proved far too high compared to National Amusements’ alternatives.”
So what’s next for Paramount? Greenfield suggested four areas of focus: new management, a course correction of Paramount+, asset sales, and the sale of a minority stake in NAI.
“We would be surprised to see Paramount maintain its three-person CEO office beyond the next few months,” the LihtShed analyst shared. “We believe Paramount will look to appoint a dedicated CEO, with all three current CEOs reporting to the new CEO.” Its top candidate for CEO is Charles Phillips, a current Paramount board member and former Viacom board member. “Ironically, Phillips was previously a senior executive and board member of Oracle,” Greenfield noted. “We also expect that current CFO Naveen Chopra will be fired shortly and replaced by someone outside of the ranks of Paramount’s current management.”
The analyst has long suggested that Paramount should license its content to the highest bidders or seek a joint venture with another streaming player instead of trying to create Paramount+ alone. “The current strategy has no hope of creating a viable, profitable business in the long term,” Greenfield wrote Wednesday. “We expect an aggressive battle between Amazon Prime Video, Warner Bros. Discovery/Max and NBCU/Peacock to license content from Paramount or create some form of joint venture with Paramount+.”
The expert also expects the Redstone family to seek to “sell a portion of its majority stake in National Amusements to a third party, potentially ceding a long-term path to control.” Selling a minority stake would avoid lengthy regulatory review, he noted.
Finally, Greenfield sees the possibility of making deals to shed parts of Paramount itself. “There are significant asset sales that Paramount can now pursue, as well as closing loss-making assets that previous management refused to move on from,” he suggested. “We expect Paramount to seek to sell and re-lease the Paramount land, get rid of local non-CBS TV stations, close loss-making overseas businesses (which were pet projects of the former CEO Bob Bakish, who previously led Viacom International) and selling unprofitable businesses. core assets, such as BET. We also wouldn’t be surprised to see Paramount sell Pluto TV.
In the meantime, Third bridge analyst Jamie Lumley shared this view on Skydance’s failed buyout bid: “As it became increasingly clear that Skydance intended to sell assets following a merger, it seems likely that Shari Redstone wanted to have more say in the ultimate headquarters of elements of his media empire. Additionally, the convoluted nature of the proposed merger could have led to legal challenges from common shareholders and threatened its viability.
Based on his conversations with people in the industry, the expert still sees sales potential, but in pieces. “It always makes more sense for Paramount to be sold in part, given the challenges any given player faces in absorbing all of its different activities,” Lumley wrote. But he did not support any of the pioneers, instead saying: “The question of who is best positioned to capitalize on this remains open to debate.” »