It’s time to take a breather and look for a fresh start. That seems to be the motto for Paramount Global and its investors.
With Tuesday’s news that Shari Redstone has ended months-long talks about a takeover of Paramount by a consortium led by Skydance Media and RedBird Capital without a deal, Wall Street analysts are debating, again, the future of the entertainment giant and how to think about its stock. In early Wednesday trading, that was down 2 percent at $10.82, near its 52-week low of $10.12.
Her National Amusements (NAI), which controls Paramount, said it “supports the recently announced strategic plan being 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 opportunities to drive value creation for all Paramount shareholders.” Skydance CEO David Ellison argued in an email to staff that “Skydance is stronger than ever because of you, and we are stronger because of this process.”
No surprise that Wall Street experts have started dissecting options for Paramount now that Skydance is out of the deal running.
Guggenheim analyst Michael Morris on Wednesday mentioned reports that Redstone would now likely pursue a 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.
This would mean following strategies hinted at by the three-person Office of the CEO named when CEO Bob Bakish was pushed out, including streamlining the company, transforming its streaming strategy and looking for asset sales to optimize the business mix and pay down debt. Describing that as “back to plan A,” he also opined: “We expect investors will look to second-quarter results (likely early August) as a key indication of the early traction of this plan and we anticipate additional detail at that time.”
Others on the Street outlined similar expectations.
Redstone “now seems set on either continuing the status quo or divesting herself of just her NAI stake, handing over the reins of her family’s empire to new stewards without delving into any broader or more complicated plan that would involve other media companies or shareholders,” wrote MoffettNathanson analyst Robert Fishman in a report entitled “Door Number Three.”
He spent part of his note running through the business challenges and opportunities for Paramount, concluding that its “mix of assets presents in many ways a challenged hand for navigating the shifting 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 (outside of CBS) towards general entertainment, the content category seeing the most rapid decline.”
Fishman also weighed in on the company’s streaming and film assets. “Paramount+ continues to burn cash (though … cost cuts, if materialized, may help),” he highlighted. “Pluto might hold a place within the broader AVOD/FAST connected TV advertising world, but its success (at least in part) cannibalizes linear TV ad dollars.” And the studio unit? “Paramount film studio has managed to produce several respectable hits over the past few years, but production and financing deals limit much of the financial upside from these successes,” the MoffettNathanson expert emphasized.
His advice for investors: “If Ms. Redstone decides to further explore only the sale of NAI, Paramount investors will be forced to weigh the updated plan laid out during last week’s annual meeting.” But details on that “remain sparse, with more promised during the second-quarter earnings in August” from the Office of the CEO of Chris McCarthy, George Cheeks, and Brian Robbins, Fishman explained. The highlights include “transform(ing) streaming by exploring strategic partnerships/joint ventures for Paramount+ and more aggressive licensing opportunities, streamlin(ing) the company with $500 million of additional cost cuts, optimiz(ing) Paramount’s asset mix by exploring divestitures to pay down debt.”
Fishman concluded that it was time to review his stance on Paramount. “We upgraded Paramount from ‘sell’ to ‘neutral’ in January with a realization that deal speculation would detach the stock from the company’s fundamentals,” he wrote. “With any hopes of a deal for Paramount independent shareholders now more likely in the rear-view mirror, we will revisit our estimates to address the new annual meeting plan to determine our updated valuation.”
LightShed Partners analyst Richard Greenfield also suggested that staying on the sidelines may be the best tactic for now. His Wednesday report was fittingly entitled “A Strange Game, the Only Winning Move Is Not to Play (for Now).”
“We believe National Amusements is keen to sell Paramount eventually. However, there are plenty of … easy lifts to create value that do not require a sale today, and which would notably improve Paramount’s balance sheet without a 12-month-plus regulatory review,” he argued. “As Paramount executes on these strategic shifts, we will gain far more clarity on the regulatory situation in the U.S., based on the upcoming presidential election in November.”
Suggested Greenfield: “A Trump presidency versus Biden could open a far wider array of bidders for all or parts of Paramount. We suspect the next 12-18 months is a ‘pause’ in the Paramount M&A process, not the end.”
The expert had this take on why Redstone ended the Skydance talks: “Ultimately, we believe the legal risk of Skydance’s proposed transaction proved to be far too high relative to National Amusements alternatives.”
So what next for Paramount? Greenfield suggested four focus areas: new management, a Paramount+ course correction,” asset sales, and the sale of a minority stake in NAI.
“We would be surprised to see Paramount maintain its three-headed office of the CEO beyond the next few months,” the LihtShed analyst shared. “We suspect Paramount will look to appoint a dedicated CEO, with the three current CEOs reporting to the new CEO.” His top CEO candidate is current Paramount board member and former Viacom board member Charles Phillips. “Ironically, Phillips was previously a senior executive and board member of Oracle,” Greenfield noted. “We also expect current CFO Naveen Chopra to be terminated shortly and replaced with someone from outside Paramount’s current executive ranks.”
The analyst has long suggested that Paramount must license its content to the highest bidders or looking for a joint venture with another streaming player instead of trying to build Paramount+ alone. “The current strategy has no hope of creating a viable, profitable long-term business,” Greenfield wrote on Wednesday. “We expect an aggressive battle between Amazon Prime Video, Warner Bros. Discovery/Max and NBCU/Peacock to license Paramount’s content or create some form of joint-venture with Paramount+.”
The expert also expects the Redstone family to look to “sell a portion of its controlling stake in National Amusements to a third-party, potentially ceding a long-term path to control.” The sale of a minority stake would avoid a lengthy regulatory review, he noted.
Finally, Greenfield sees room for deals to offload parts of Paramount itself. “There are significant asset sales possible that Paramount can now pursue, as well as shuttering money-losing assets that former management refused to exit,” he suggested. “We expect Paramount to look to sell and lease back the Paramount lot, offload non-CBS local TV stations, shutter money-losing businesses overseas (which were pet projects of former CEO Bob Bakish who previously ran Viacom International), and sell non-core assets, such as BET. We also would not be surprised to see Paramount sell Pluto TV.”
Meanwhile, Third Bridge analyst Jamie Lumley shared this take on the failed Skydance takeover offer: “As it became increasingly clear that Skydance intended to sell off assets following a merger, it seems likely Shari Redstone wanted greater say over the ultimate home of the pieces of her media empire. Additionally, the convoluted nature of the proposed merger might have led to legal challenges from common shareholders and threatened its viability.”
Based on his conversations with industry people, the expert still sees potential for a sale, but in pieces. “It still makes the most sense for Paramount to be sold in parts given the challenges for any one player in absorbing all of its various businesses,” Lumley wrote. But he didn’t back any frontrunners, instead offering: “The question of who is best positioned to capitalize on this remains open for debate.”