Why Shari Redstone wants the proper deal

Paramount Global nonexecutive chair and controlling shareholder Shari Redstone has been speaking to potential patrons thinking about buying her media firm — or components of it for years — however the seriousness of these discussions has heightened in current months.

There are sector-related causes for why a deal appears more and more pressing. The media world is altering quickly. Through the Covid-19 pandemic, legacy media firms seemingly had a path to progress by launching their very own streaming providers. However Wall Road turned its collective again on that narrative after Netflix growth stalled in 2022, leaving firms akin to Paramount International twisting within the wind.

Paramount International’s flagship streaming service, Paramount+, has efficiently accrued 63 million subscribers, and it is nonetheless rising. However it’s additionally nonetheless dropping cash, albeit not as a lot because it used to. Third-quarter streaming working losses had been $238 million. A yr in the past, they had been $343 million.

And not using a clear progress narrative, Paramount International has struggled as a publicly traded firm. Shares are down 56% prior to now two years. This has piqued the curiosity of some non-public fairness companies and different potential patrons, together with David Ellison at Skydance Media and media mogul Byron Allen.

If Paramount International — which owns Paramount Photos, CBS, cable networks akin to Nickelodeon and Comedy Central, and mental property akin to “Star Trek” and “SpongeBob SquarePants” — is withering as a publicly traded firm, maybe taking it non-public or promoting a number of the property for components makes extra sense.

Redstone has private causes for contemplating promoting now, too. She has lengthy had an energetic curiosity in Jewish causes, together with having served on the board of Mixed Jewish Philanthropies.

Redstone’s give attention to combating antisemitism has elevated for the reason that Oct. 7 Hamas terrorist assault on Israel, which killed about 1,200 people, in line with folks aware of Redstone’s considering.

“Look, I am not doing effectively, to be trustworthy,” Redstone told The Hollywood Reporter in October. “I believe there aren’t any phrases to explain what passed off, and all I do each day is attempt to do one thing that is going to make a distinction and assist folks.”

Then there is a important monetary consideration associated to Nationwide Amusements Inc., or NAI, the holding firm that owns nearly all of Paramount International’s voting shares.

When Redstone’s father, Sumner Redstone, the founding father of Nationwide Amusements, died in 2020, Shari Redstone inherited his shares. Nationwide Amusements instantly or not directly via subsidiaries owns 77% of the Class A voting inventory of Paramount International and 5.2% of the Class B widespread inventory, constituting about 10% of the general fairness of the corporate.

In response to tax legislation, Shari Redstone should pay taxes on the shares tied to their worth on the time of her father’s loss of life. That quantities to greater than $200 million, in line with an individual aware of the matter.

Redstone has deferred the tax invoice for 10 years, till 2034, and solely owes about $7 million this yr, stated the particular person, who requested to not be named as a result of the small print are non-public. Nonetheless, the looming tax cost, together with an extra $37 million debt payment due to Wells Fargo in March, could possibly be compelling motivation to dump Nationwide Amusements for money, reasonably than a commerce of fairness with a strategic companion.

Nationwide Amusements will make its March cost on time, in line with a Redstone spokesperson.

“Nationwide Amusements has important property together with our well-located film theaters within the US, UK and Latin America, owned actual property properties and shareholding in Paramount International. We proceed to take steps to enhance our monetary place together with via debt discount with a significant paydown in March,” the spokesperson stated.

Warner Bros. Discovery has held preliminary talks to accumulate Paramount International. Whereas Warner Bros. Discovery board member John Malone suggested in an interview with CNBC in November that Paramount International could possibly be a future distressed asset, that destiny will be prevented if CEO Bob Bakish could make Paramount+ worthwhile.

There could possibly be structural points with a Warner Bros. Discovery deal, when it comes to a cash-stock cut up, together with how a lot debt a mixed firm would need to carry. It is also potential Warner Bros. Discovery might select to attend to see if Comcast is prepared to half with NBCUniversal.

In early talks with patrons, Redstone has pushed for a excessive premium for each Nationwide Amusements and Paramount International, in line with folks aware of the matter. Paramount International has a market capitalization of practically $10 billion and about $13 billion of internet debt.

Redstone additionally has fiduciary duties as Paramount International’s nonexecutive chair. If she agrees to promote both Nationwide Amusements or all of Paramount International, she’ll want purchase in from different traders.

Banker Byron Trott, who helps Redstone navigate sale talks, has lengthy been an advisor for Warren Buffett, whose Berkshire Hathaway is Paramount International’s largest Class B shareholder.

No deal is imminent, stated folks aware of the method. As CNBC reported last month, Skydance is thinking about buying NAI as a part of a two-step transaction that will contain merging Skydance with Paramount Photos.

Talks are additional together with Redstone concerning NAI than they’re with Paramount International, two of the folks stated. Nonetheless, Skydance is just thinking about buying NAI if it will probably get a deal finished with Paramount International, CNBC reported in January.

Spokespeople for Skydance, Nationwide Amusements and Paramount International declined to remark.

There’s additionally the problem of Charter‘s looming carriage cope with Paramount International, which is about to run out in April, in line with folks aware of the matter. This will not be guiding Redstone’s urgency for a sale, as a possible deal will likely be reached lengthy earlier than an acquisition closes, but it surely’s definitely looming over the corporate’s future prospects.

Whereas Comcast, the biggest U.S. cable supplier, and Paramount International renewed their deal with little fanfare in December, Constitution is a distinct animal. The second-largest U.S. cable operator struck a cope with Disney final yr that paved the way in which for Constitution to start lopping off little-watched cable networks whereas instantly promoting subscription streaming providers to its thousands and thousands of broadband prospects.

Paramount International costs $5.99 per thirty days for Paramount+ with promoting. Most of what airs on CBS and Paramount International’s cable networks is accessible on Paramount+. That provides Constitution two benefits in a renewal deal.

First, Constitution will probably argue Paramount International has set a worth of $5.99 for the worth of all its cable networks and CBS. Constitution can level to that because the ceiling worth for what it is prepared to pay for Paramount International’s linear channels.

Second, Constitution now has some blackout leverage with shoppers as a result of they’ll level them towards Paramount+ as a comparatively cheap means of accessing Paramount’s content material. Constitution will make the identical argument it did with Disney: The existence of the identical content material on each the streaming service and the linear channels is successfully double charging the patron.

Paramount International in all probability cannot afford to lose carriage for the majority of its networks with Constitution, given Paramount+ continues to lose cash. Paramount International continues to be depending on its linear enterprise, which earned $15 billion of its $22 billion in income within the first 9 months of 2023 from conventional TV. Greater than $6 billion of that was from cable affiliate charges.

Bakish has at all times efficiently reached renewal offers with the key pay TV distributors since taking on as CEO in 2019 and even relationship again to his time working Viacom, starting in 2016. Nonetheless, given Bakish’s lack of leverage, he might should accept decrease affiliate charges or an settlement that devalues Paramount+.

Disclosure: Comcast owns NBCUniversal, the guardian firm of CNBC.

WATCH: CNBC’s Jim Cramer on Paramount International

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