Shari Redstone, president of National Amusements, speaks at the WSJ Tech Live conference in Laguna Beach, California, on October 21, 2019.
Mike Blake | Reuters
Big global Non-executive chairman and controlling shareholder Shari Redstone has been talking to potential buyers interested in acquiring her media company – or parts of it – for years, but the seriousness of those discussions has increased in recent months.
There are sector-related reasons why an agreement seems increasingly urgent. The media world is changing quickly. During the Covid-19 pandemic, traditional media companies seemed to have found a path to growth by launching their own streaming services. But Wall Street then collectively turned its back on that story Netflix Growth stalled in 2022, leaving companies like Paramount Global in the wind.
Paramount Global's flagship streaming service, Paramount+, has successfully amassed 63 million subscribers and continues to grow. But money is still being lost, although not as much as before. Streaming operating losses in the third quarter were $238 million. A year ago they were $343 million.
Without a clear growth story, Paramount Global has struggled as a publicly traded company. The shares are down 56% in the past two years. This has attracted interest from a number of private equity firms and other potential buyers, including Skydance Media's David Ellison and media mogul Byron Allen.
If Paramount Global — which owns Paramount Pictures, CBS, cable networks like Nickelodeon and Comedy Central, and intellectual property like “Star Trek” and “SpongeBob SquarePants” — is languishing as a publicly traded company, perhaps taking it private or selling some of assets for parts makes more sense.
Redstone has personal reasons for also considering selling now. She has long had an active interest in Jewish causes, including serving on the board of Combined Jewish Philanthropies.
Redstone's focus on combating anti-Semitism has increased since Hamas's Oct. 7 terrorist attack on Israel, which killed about 1,200 people, according to people familiar with Redstone's thinking.
“Look, I'm not doing well, to be honest,” Redstone told The Hollywood Reporter in October. “I don't think there are words to describe what happened, and all I do every day is try to do something that's going to make a difference and help people.”
President of National Amusements Shari Redstone arrives at the annual Allen and Co. Sun Valley media conference in Sun Valley, Idaho, on July 5, 2022.
Brendan Mcdermid | Reuters
Then there's a significant financial consideration related to National Amusements Inc., or NAI, the holding company that owns the majority of Paramount Global's voting stock.
When Redstone's father, Sumner Redstone, the founder of National Amusements, died in 2020, Shari Redstone inherited his shares. National Amusements, directly or indirectly through subsidiaries, owns 77% of Paramount Global's Class A voting stock and 5.2% of its Class B common stock, representing approximately 10% of the company's total equity.
According to tax law, Shari Redstone must pay taxes on the shares pegged to their value at the time of her father's death. That amounts to more than $200 million, according to a person familiar with the matter.
Redstone has deferred its tax bill for 10 years, until 2034, and owes only about $7 million this year, said the person, who asked not to be named because the details are private. Still, the looming tax payment, along with an additional $37 million debt payment to Wells Fargo in March, could provide compelling motivation to sell National Amusements for cash, rather than a share swap with a strategic partner.
National Amusements will make the payment on time in March, according to a Redstone spokesperson.
“National Amusements has significant assets, including our well-located cinemas in the US, UK and Latin America, real estate assets and shares in Paramount Global. We continue to take steps to improve our financial position, including through debt reduction with a meaningful payout in March,” the spokesperson said.
The right kind of deal
Redstone's varied motivations for selling mean she's looking for the right kind of deal, at the right price — and so far she's had options.
Warner Bros. Discovery has entered into preliminary discussions to acquire Paramount Global. While Warner Bros. board member John Malone While Discovery suggested in a November interview with CNBC that Paramount Global could be a future distressed asset, that fate could be avoided if CEO Bob Bakish can make Paramount+ profitable.
There may be structural problems with a Warner Bros. Discovery deal, in terms of a cash and stock split, including how much debt a combined company would be willing to carry. It's also possible that Warner Bros. Discovery chooses to wait to see if Comcast is ready to part ways with NBCUniversal.
In early discussions with buyers, Redstone has pushed for a high premium for both National Amusements and Paramount Global, according to people familiar with the matter. Paramount Global has a market capitalization of nearly $10 billion and net debt of approximately $13 billion.
Redstone also has fiduciary duties as non-executive chairman of Paramount Global. If she agrees to sell National Amusements or all of Paramount Global, she will need buy-in from other investors.
Banker Byron Trott, who helps Redstone navigate sales calls, has been a longtime adviser to Warren Buffett, whose Berkshire Hathaway is the largest Class B shareholder of Paramount Global.
No deal is imminent, people familiar with the process said. As CNBC reported last month, Skydance is interested in acquiring NAI as part of a two-step transaction that would combine Skydance and Paramount Pictures.
Talks with Redstone about NAI are more advanced than with Paramount Global, two of the people said. Still, Skydance is only interested in acquiring NAI if it can strike a deal with Paramount Global, CNBC reported in January.
Spokespeople for Skydance, National Amusements and Paramount Global declined to comment.
Renewal of the charter
There is also the matter of Charter's looming carriage deal with Paramount Global, which is set to expire in April, according to people familiar with the matter. This may not guide Redstone's urgency for a sale, as a likely deal will be reached long before an acquisition is completed, but it certainly looms large for the company's future prospects.
While Comcast, the largest U.S. cable provider, and Paramount Global renewed their deal in December with little fanfare, Charter is a different story. The second largest US cable operator has closed a deal Disney Last year, that cleared the way for Charter to start cutting off little-watched cable networks and selling subscription streaming services directly to its millions of broadband customers.
Paramount Global charges $5.99 per month for Paramount+ with ads. Most of what airs on the CBS and Paramount Global cable networks is available on Paramount+. That gives Charter two advantages in a renewal agreement.
First, Charter will likely argue that Paramount Global has set a price of $5.99 for the value of all its cable networks and CBS. Charter can point to this as the ceiling price for what it is willing to pay for Paramount Global's linear channels.
Second, Charter now has some leverage with consumers because they can point them to Paramount+ as a relatively cheap way to access Paramount's content. Charter will make the same argument it made with Disney: the existence of the same content on both the streaming service and the linear channels essentially charges consumers double.
Paramount CEO Bob Bakish speaks with CNBC's David Faber on September 6, 2023.
CNBC
Paramount Global likely can't afford to lose carriage for most of its networks with Charter as Paramount+ continues to lose money. Paramount Global still relies on its linear business, which earned $15 billion of its $22 billion in revenue from traditional TV in the first nine months of 2023. More than $6 billion of that came from cable partner fees.
Bakish has consistently successfully negotiated renewal deals with the major pay-TV distributors since taking over as CEO in 2019, dating back to his time leading Viacom, beginning in 2016. Still, given Bakish's lack of influence, Bakish may be content have to take with a lower connected network. fees or an agreement that devalues Paramount+.
Disclosure: Comcast owns NBCUniversal, the parent company of CNBC.
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