July 19, 2024

(Bloomberg) — Paramount Global agreed to merge with Skydance Media in a deal that hands control of the storied Hollywood studio to producer David Ellison, ending one of the industry’s most dramatic acquisitions.

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As part of the complicated deal that was months in the making, Paramount Chair Shari Redstone agreed to sell her family’s National Amusements Inc., which controls about 77% of the voting stock in Paramount, for $2.4 billion, according to a statement from the company on Sunday.

The accord marks an abrupt turnaround after talks between Redstone and Ellison, the son of Oracle Corp. co-founder Larry Ellison, collapsed last month. Redstone’s decision at the time to end discussions shocked the board and frustrated employees and investors, sending the stock tumbling.

But Ellison and Redstone remained in touch and worked to resolve their differences. Redstone had long made clear that she felt Ellison, an upstart movie mogul, made the most sense for Paramount and represented the best opportunity to protect her family’s legacy. In the past few weeks, Ellison made a few changes to the deal, including offering more protection against potential shareholder lawsuits.

According to terms of the new deal, the Ellison family and RedBird Capital Partners have agreed to invest more than $8 billion in the business. That includes $1.5 billion to help pay down Paramount’s debt and $4.5 billion to buy Paramount shares.

The deal would allow non-Redstone voting shareholders to cash out for $23 a share or roll their shares into the new company. Non-voting shareholders would be able to receive $15 a share in cash or 1 share in the new company. Those terms represent a 48% premium for non-voting shareholders and a 28% premium for voting shareholders compared with Paramount’s share price as of July 1.

After the deal closes, which is expected in the first half of 2025, the Ellison-led group will own about 70% of Paramount’s shares outstanding. The sellers have 45 days to seek better offers. The Skydance deal includes a $400 million breakup fee if it falls apart.

Paramount shares slid 4.5% on Monday morning to $11.28 in New York. They’re down 24% so far this year.

New owners and additional capital could provide a fresh start to beleaguered Paramount, the parent of CBS and MTV. Laden with more than $14 billion in debt, the iconic Hollywood company has struggled to compete in streaming and has suffered as cable TV audiences canceled their subscriptions and abandoned traditional channels like CBS and Nickelodeon. The company had a net loss of $554 million, or 87 cents a share, in the first quarter.

“Given the changes in the industry, we want to fortify Paramount for the future while ensuring that content remains king,” Redstone said in the statement. “As a longtime production partner to Paramount, Skydance knows Paramount well and has a clear strategic vision and the resources to take it to its next stage of growth. We believe in Paramount and we always will.”

Ellison, 41, will be chairman and chief executive officer. Jeff Shell, a former NBCUniversal executive, will be president. Ellison, who was raised around Silicon Valley luminaries like Steve Jobs, believes the company could thrive if it invests more in technology. Skydance will use artificial intelligence to “turbocharge content creation capabilities that improve overall productivity and lower costs,” the company said.

Paramount, which owns the movie studio behind films including Titanic and The Godfather, has been controlled for three decades by the Redstone family. But the shares have lost more than half of their value since the Redstones recombined CBS Corp. and Viacom Inc. in 2019 to create Paramount Global.

Ellison has been pursuing Paramount for months, sensing a rare opportunity to own one of Hollywood’s most iconic studios. Ellison said that Paramount, as a legacy media company, “needs to double down on story telling, but it really needs to make the transition to being tech-hybrid as a company.” On a conference call with analysts, Ellison noted that big tech companies have been aggressively moving into the media space and that for Paramount to be successful, it needs to move toward being a tech company. “Bringing together tech and media, that’s what’s essential to chart a course forward in this environment,” he said.

Redstone, 70, pushed for a merger of Paramount with Skydance over a deal with other interested parties and despite opposition from the company’s management and other shareholders, the resignation of four board members and the looming specter of litigation.

She dismissed the company’s Chief Executive Officer Bob Bakish, a vocal skeptic of the deal, replacing him with a management committee of three leaders who have promised $500 million in annual cost savings. The Skydance deal will produce about $2 billion in cost savings, the companies said.

Just as a deal with Skydance seemed imminent last month and a special committee of the board convened to discuss the proposal, Redstone backed out.

By that point Ellison had reduced his offer for Redstone’s National Amusements so he could give more money to other Paramount shareholders, a sticking point for the company to agree to the deal but one that turned Redstone off.

Paramount, which was purchased by Shari Redstone’s late father Sumner in 1994, has been up for sale since late last year. National Amusements has held talks with various suitors, including Sony Group Corp. and Apollo Global Management Inc., which proposed a $26 billion deal. But that offer, which would have involved a foreign owner and the consolidation potentially of two large Hollywood studios, was seen as problematic and likely to face tough regulatory scrutiny.

More recently, Barry Diller, the 82-year-old chairman of IAC Inc. and former head of Paramount Pictures, has expressed interest in the company. So has longtime media executive Edgar Bronfman Jr.

Until the deal closes, the three Paramount CEOs will continue with their plans to reduce costs through job cuts and seeking opportunities for streaming joint ventures and more possibilities to license content to other networks.

Ellison reiterated the company’s commitment to its money-losing, direct-to-consumer streaming services, noting that better technology, such as an improved discovery system, could bolster the user experience on Paramount+ and decrease subscriber churn.

“While people often debated whether content or distribution ruled the day, my father was governed in all of his decisions by his belief that content was indeed king,” Redstone told employees in an internal memo seen by Bloomberg. “We continue to create content that resonates with our consumers, that they continually seek out, and that keeps them wanting more.”

–With assistance from Lucas Shaw, Edwin Chan and Brandon Mioduszewski.

(Updates with details from analyst call and shares.)

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