Share of Paramount Global hit a milestone today, and not a good one.
The stock price fell below $10 intraday, changing hands at $9.91 just now, down 2% from Friday. It’s never dipped below ten bucks since Viacom and CBS merged in December of 2019, making this an all-time low after David Ellison‘s Skydance packed up and went home.
Shares of the combined company have have bounced around, starting at about $35 at the merger (ViacomCBS was subsequently renamed Paramount Global). They were briefly around $10 in the depths of Covid, but were pushing $90 a year later, before a slow decline. It’s the media industry — the streaming wars, linear woes — but also some self-inflicted wounds. Paramount had a chance at different times to sell both Showtime and BET for a nice cash infusion. The shares were above $16 at the height of merger speculation last fall.
After discussing a potential transaction for months, Paramount’s controlling shareholder Shari Redstone backed away at the 11th hour last week, leaving the company her father built in a complicated position with high debt, significant exposure to declining linear television, and ongoing streaming losses. She surely had her reasons but it was so messy.
The company’s three newly appointed CEOs have outlined plans for $500 million in costs cuts, a strategic partnership in streaming and other measures to keep the company chugging ahead.
But the drama of the last six months has left Wall Streeters frustrated and considering the options.
There are two other parties (Edgar Bromfman and Steven Paul) interested in buying her family holding National Amusements (which controls Paramount). and other may emerge for a transaction that would be a simple change in control. Redstone could also sell just a part of her NAI holding for some cash to address the holding company’s debt payments. Loans are collateralized in large part by Paramount stock and NAI has had to renegotiate debt covenants several times as the shares slipped.
The Skydance proposal was two steps, the first being an acquisition of NAI from Redstone, a number that was lowered in revised offers to find cash for Par’s public shareholders. The second step was a merger of Skydance and Paramount. Sticking points included how Paramount would be run during a period of regulatory scrutiny, which it was expected to pass. Another was legal liability since shareholders had threatened to sue Redstone if the deal went through. There may have other considerations.
The current restrictive regulatory regime has hovered over all aspects of the deal. An offer from Sony and Apollo was considered by many a non-starter due to foreign ownership rules for broadcasters, station caps, and concerns that it wouldn’t be easy to merger two more Hollywood studios. Everyone’s eyeing the polls because it’s though a victor by Donald Trump that could reconfigure the FCC and FTC might shift the landscape and be more forgiving of deals. For now, a trio of CEOs are running Paramount and have anticipated cost cuts, a strategic partnership for Paramount+ and other measures.
Alan Gould of Loop Capital in a report last week described Paramount now.
“Without a deal the public now owns a company with: 125% of its EBITDA coming from the shrinking linear TV business, and the majority of that from general entertainment cable networks; a new 3-person office of the CEO; another round of cost-cutting coming; a likely change to its streaming strategy; an employee base that has already endured 6 months of uncertainty; little appeal for most agents and producers to bring their best material to; a possible rift with the co-producer of its tent-pole films, leverage over 4x and likely to creep up.”
He has a sell rating on the stock and a price target of $8. “We assume PARA intensifies its focus to generate cash. At the annual meeting the tri-CEOs announced a $500M cost-cutting initiative. They will try to find a partner for the streaming business which lost $4.5B over the past three years and is projected to lose another $0.9B this year. Paramount+, in our opinion, has little value without the content, and the content will stay with the company. The company will license more content to raise cash. We would not be surprised to see BET put up for sale again. Management may decide to completely eliminate the dividend, which is now only costing the company $140M per year, but that capital could be put to better use reinvesting in the business.”
The best deal for the company, he and others think, is Warner Bros. Discovery — a possibility flamed up briefly last year before CEO David Zaslav stood down. Nothing that WBD stock is even lower than Paramount’s, trading at about $7.13 now.
“Given the challenges of the traditional media business, the deal with the most industrial logic would be a merger with WBD creating a TV production powerhouse, a more profitable combined studio, and providing WBD with a broadcast network. However, that deal certainly could not be done under the current administration, and would likely require a steep decline in PARA shares to be palatable to WBD shareholders,” Gould wrote.
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