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A Media Heiress’s Bid to Sell Sets Off Mayhem Inside Paramount
by Jessica ToonkelApril 28, 2024 - 7:27 pm EDT
by Jessica Toonkel
Shari Redstone was finally ready to cash out.
The media heiress who controls Paramount Global, owner of CBS, MTV, Nickelodeon and the Paramount film studio, last year started seriously contemplating selling the business.
She began to feel the pinch of the entertainment giant’s decline when management cut the dividend that has supplied income to the Redstone family for years. She showed friends photos of the house she was building in Turks and Caicos. The Oct. 7 attacks on Israel left her motivated to spend more time on fighting antisemitism, people close to her said.
So when David Ellison, the CEO of production company Skydance Media and son of billionaire Larry Ellison, raised the idea of a merger, Redstone was ready to hand over a media empire her family has controlled for nearly four decades.
If only it were that easy.
In the past few weeks, Redstone’s journey toward a deal has turned into one of the messiest merger dramas in memory, with the fate of an iconic American company—home of “Titanic,” “The Godfather,” and the “Indiana Jones” franchise—hanging in the balance.
Shareholders are rebelling over a proposed Skydance merger, bringing to the fore a central tension that has always been present in Paramount: what’s good for the Redstone family might not be as good for every other investor.
Meanwhile, tensions between Redstone and Paramount CEO Bob Bakish have reached a breaking point, and the company could announce as soon as Monday that it is parting ways with him, further clouding deal prospects. Paramount is expected to put in place an “Office of the CEO” made up of divisional heads for now.
Selling Paramount would be difficult enough even without all that turmoil, given how it has faded over the past several years. The collapse of the cable TV industry has hammered Paramount, and its struggle to find a profitable path in the new streaming world has only compounded its troubles. The company’s market value has plummeted by 80% on Redstone’s watch over the past eight years—dealing a multibillion-dollar blow to her family’s fortune.
Paramount has had chances to break up and divest its most attractive pieces over the years. Netflix and Apple, for example, showed interest in the Hollywood studio business, while former Showtime executives each offered hefty sums for the channel and Comcast was intrigued by a potential partnership in streaming, people familiar with those discussions said.
Though Redstone was open to some deals, like a Showtime sale, she held out hope that a big buyer—maybe a technology giant—would emerge to take the whole company off her hands, including fast-deteriorating cable channels. That didn’t happen.
“The hope for any company in this space is that Apple will come out and buy them, but that’s not a strategy,” said Robert Fishman, an analyst with MoffettNathanson.
Now Redstone is playing a weaker hand as the company explores its options. Paramount has been in exclusive talks with Skydance toward a deal that would net Redstone more than $2 billion in cash for National Amusements, the holding company that owns the family’s 77% voting stake in Paramount and a chain of movie theaters. Nonvoting Paramount investors would get stock in a newly merged company.
The current value of Redstone’s Paramount holding is about $750 million, meaning she would be getting a substantial premium in a Skydance deal. A battery of shareholders have gone public with concerns that it would be a sweetheart deal for Redstone. Skydance on Sunday proposed a revised offer, the details of which couldn’t be learned.
An independent board committee has been tasked with reviewing the Skydance deal. In a statement, National Amusements said it would respect the committee’s decision on “whether the Skydance deal presents an attractive transaction for Paramount and whether they want to continue to move forward.” National Amusements has signaled that it is open to making a transaction contingent on approval by a majority of non-Redstone shareholders, people close to the talks said.
Paramount has another potential option on the table. Private-equity giant Apollo Global Management submitted a $26 billion offer, including about $12 billion in equity plus assumption of debt. The board had concerns about Apollo’s bid, including whether it could arrange financing for a deal. Since then, Apollo has discussed teaming up with Sony Pictures on a potential bid.
An Apollo deal could be much more appealing to Paramount shareholders—giving them a cash payout—but wouldn’t give Redstone the hefty premium Skydance is offering.
Bakish has told people close to him he has concerns about the Skydance transaction. He and his management team worked to find an alternative with advisers including Aryeh Bourkoff, a power player in media who runs boutique investment bank LionTree.
Earlier this year, Bakish floated a plan to raise equity capital to buy out all voting shareholders in Paramount, including Redstone, according to people familiar with those discussions. This move would have allowed Redstone to cash out and would have collapsed the company’s dual-class share structure, creating equal footing for all shareholders. Redstone wasn’t interested in the idea, the people said.
In mid-April, Redstone and Bakish both attended the retirement party for Sean McManus, the chair of CBS Sports, at The Grill in New York City, mingling with the likes of NFL commissioner Roger Goodell and former CNN chief Jeff Zucker. Bakish and Redstone barely spoke, one attendee said.
As the merger saga plays out, the business is in a pickle: the streaming operation, anchored by Paramount+, is growing swiftly, but posted $1.7 billion in losses last year. The TV business is shrinking, but continues to supply the lion’s share of the company’s profits. Paramount reports quarterly earnings Monday.
Paramount is in high-stakes negotiations to ensure carriage of its cable channels—among them Comedy Central, BET, MTV, VH1 and others—by cable giant Spectrum, with the current contract expiring at the end of April.
Paramount has begun planning for what would happen if no deal materializes. In recent days, top Paramount divisional heads presented a plan to cut more than $2 billion in costs while investing more in content, through selling CBS TV stations and cable network BET, and establishing a streaming joint-venture. The goal through those and other restructuring moves would be to slash Paramount’s roughly $14 billion in debt, people familiar with the presentations said.
A Reluctant Seller
Redstone, who turned 70 this month, fought a nasty battle to succeed her father, the irascible media mogul Sumner Redstone—vanquishing rival executives, nurses and his girlfriends along the way. She has a strong attachment to Paramount.
“Shari Redstone worked really hard to get the family business in her hands, so there must be a lot of personal tie-in to this whole endeavor,” said Tim Nollen, an analyst at Macquarie who has been bearish on Paramount for some time. “It’s easy to say you should have broken it up or sold, but maybe it wasn’t that easy with that in mind.”
As her father’s health deteriorated significantly by 2016, Redstone assumed the role of de facto boss of CBS and Viacom, the two separate companies in the family portfolio, which then had a combined worth of roughly $40 billion. Had Redstone sold her family stake in each company at that time, securing a premium similar to what Skydance is offering now, she would have walked away with more than $10 billion.
Viacom, once the darling of the Redstone holdings, was coming under major pressure as cord-cutting accelerated and its vast exposure to cable TV became a liability. In the five years through 2018, the company shed more than $25 billion in market value. CBS was comparatively stronger, bolstered by its high-rated broadcast network and rights to air NFL games.
When Shari Redstone pushed to reunite Viacom and CBS, she encountered resistance, with some warning her that the healthier CBS side could wind up damaged. “If one of your kids is sick, do you make them sleep in the same room or do you separate them,” one person involved in the deal recently recalled telling her at the time.
Redstone, who thought scale would help the company thrive in a Netflix-dominated media world, was undeterred and merged the two companies, forming what is now Paramount Global.
Redstone would have been better off if she had sold the entire company or pieces of it back when she took control, said Chris Marangi, co-chief investment officer at Gabelli Funds, which is Paramount’s second-biggest voting shareholder.
The CEOs of AT&T and Verizon each approached Redstone about buying CBS in the years before she pursued its merger with Viacom, but she declined.
“If she hadn’t merged the companies, it clearly would have been different,” Marangi said. “We would have all preferred 2019 prices for these assets.”
Even after Redstone reunited the media empire, offers for certain assets persisted.
Apple has expressed interest in the Paramount studio and toyed with the idea of buying the whole company to get it, according to people close to the situation. Similarly Netflix Co-CEO Ted Sarandos has expressed interest in buying the studio, but Redstone said it wasn’t for sale.
Showtime’s Billions
Redstone has complained about Bakish’s decision not to sell premium cable channel Showtime, say people close to her camp. The channel, an HBO rival, was known for high-quality fare such as “Dexter” and “Billions,” but it had an uncertain future in streaming, and rising production costs.
On Labor Day weekend 2020, former Showtime executive Mark Greenberg called Bakish, who was driving home to Connecticut and offered a deal that would leave Paramount with $3 billion in cash and a 25% remaining stake in the channel. Bakish declined, saying he had received larger offers in the past.
A few months later, in March 2021, Greenberg and investment giant Blackstone offered $5.5 billion to $6 billion in cash for Showtime, according to people familiar with the terms. Under the proposed deal, former Disney executives Kevin Mayer and Tom Staggs—who now run the entertainment company Candle Media—would have joined Showtime’s board.
Paramount’s top brass didn’t pursue the offer. A few years later, another offer for Showtime came in, a more than $3 billion bid from David Nevins, the former head of the channel. Bakish turned down the deal.
Rather than selling Showtime, Bakish convinced the board that the best course was to shut down Showtime’s streaming service and fold it into Paramount+, a move he said could save billions and improve the service’s outlook.
“There have been a couple of different times when you can look back and say, ‘coulda woulda shoulda,’” Fishman said. He said Paramount’s decision to put all its content into Paramount+ made selling off company parts more challenging, as entities such as Showtime were now tightly integrated into the service.
That wasn’t the only potential deal that got away. Cable and entertainment giant Comcast, led by longtime chief Brian Roberts, in 2021 inquired about joining forces with Paramount in streaming in the U.S., as the two companies were pursuing such a partnership in Europe. Bakish resisted, taking a view that putting Paramount’s new service, Paramount+, in a joint venture could further complicate selling the whole company, people familiar with the situation said.
Lately, Bakish has taken a different approach: Bakish and Comcast hashed out a potential partnership between Paramount+ and Comcast’s Peacock service, without keeping Redstone or the board updated, people familiar with the matter said. The deal could be structured in different ways—Comcast could license all of Paramount’s content, including its CBS Sports rights, and put it onto Peacock, or the companies could form a joint venture, with Comcast in control, said one of the people.
Redstone told people close to her the terms Bakish negotiation with Comcast were bad for Paramount and that such a partnership would complicate a larger deal with a suitor like Skydance.
Dividend Drama
Facing mounting pressures in its business, Paramount in May 2023 announced it was slashing its dividend by 79%, denting a key source of revenue for National Amusements.
Redstone expressed frustration to associates, saying she had let Bakish convince her that cutting the dividend would be good for the company and would help boost the stock, according to people familiar with the situation.
Redstone told associates she should have heeded a mantra favored by her late father, who died in 2020: hire great people, but don’t let them talk you into anything you don’t want to do.
Redstone’s company, National Amusements, which owns 124 theaters in the U.S. and abroad, was already struggling to recover from the pandemic when theaters around the country were temporarily closed, and it had amassed more than $300 million in debt. For financial help the company raised $125 million from a merchant bank. The company still has about $185 million in debt, a person familiar with the situation said.
Skydance’s Ellison came into the picture in summer 2023. Redstone and Ellison have known each other for years. They once had a dinner in Los Angeles that was arranged by her son-in-law Jason Ostheimer, who is also her partner at the venture-capital firm Advancit. Redstone and the younger Ellison would see each other at industry events over the years, and more recently, bonded over the importance of family legacy—both being the children of moguls. (Sumner Redstone died in 2020.)
In December, Ellison met with Redstone and her son, Tyler Korff, at her Connecticut home. Over lunch, Ellison described Skydance’s business, whose credits includes TV shows such as Amazon’s “Tom Clancy’s Jack Ryan” and Apple TV+’s “Foundation,” and movies like “Top Gun: Maverick.” Skydance also has a sports joint venture with the NFL, an animation studio and a gaming division.
He laid out his vision: invest more in Paramount, restructure costs and improve Paramount’s data and analytics to better compete with Netflix. Redstone sent Ellison’s proposal to the board a couple of weeks later.
Tiny Skydancer
The deal itself would be structured in two steps. First, Skydance, which is backed by the Ellison family, and private-equity firms KKR and RedBird Capital Partners, would buy out National Amusements. Then, Paramount would acquire Skydance with stock at a valuation of $5 billion.
The valuation has turned heads since the Journal first reported on Skydance’s financials. The company’s expected revenue this year of just over $1 billion is one-thirtieth of Paramount’s and it is expected to generate earnings before interest, taxes, depreciation and amortization of $90 million. The Hollywood labor strike last year has weighed on many studios, including Skydance, but the company expects a surge in 2025 to $2.29 billion in revenue and $322 million in Ebitda.
Under the proposed deal, Skydance would put more than $1.5 billion in cash onto Paramount’s balance sheet, say people familiar with the terms. Former NBCUniversal CEO Jeff Shell, now a RedBird executive, would be president under Ellison.
Amid the deal talks with Skydance, a board shake-up occurred, with four directors—three of whom were on the independent committee, stepping down. Redstone had wanted a smaller, more nimble board for some time, people familiar with the situation said. The directors were told they would not be up for renomination. At least one, Nicole Seligman, an attorney and former Sony Entertainment executive, questioned the Skydance deal, the people said.
If the deal collapses, Redstone will likely pursue a sale of just National Amusements, without trying to merge Paramount into another entity, said people close to her.
Paramount is trying to carry on business as usual: as the TV world’s annual advertising sales bonanza gets under way in New York, its top executives are hosting a series of dinners this week with Madison Avenue titans at the Chelsea Factory.
Write to Jessica Toonkel at jessica.toonkel@wsj.com
