Paramount’s sale cries out for intervention

Another route. Paramount Global’s sale process is on the verge of ending like “Thelma & Louise.” A complex transaction with production studio Skydance Media would allow controlling shareholder Shari Redstone to run off with the spoils, leaving rival suitors in the dust. Other investors know they’re just along for the ride, but are trying to avoid being driven off a cliff.

Redstone, whose late father Sumner built the Paramount empire, holds 77% of the vote through her National Amusements vehicle. Anyone else with stock in the CBS broadcast and SpongeBob SquarePants owner is a mere spectator. Under the deal being considered, Skydance would buy National Amusements for $2 billion in cash, and then Paramount would buy Skydance for $5 billion in shares, according to the Wall Street Journal.

Independent investors are understandably unimpressed. Paramount shares tumbled 24% this year, before spiking late on Thursday following a report in the New York Times that buyout shop Apollo Global Management, previously spurned by Paramount, is in talks with Sony Entertainment about crafting a new bid.

It’s possible a Skydance deal would leave Paramount shareholders no worse off. Assume Skydance is valued at 7 times EBITDA, in line with Paramount, and the combined company would generate $3.5 billion in such profit, using LSEG data. After backing out debt, it would be worth approximately $11 a share, about where Paramount was trading on Thursday.

This structure also would mean massive dilution, however. The price tag requires issuing the equivalent of three-quarters of Paramount’s common shares. It also offers no immediate upside. And Skydance’s EBITDA may be as low as $200 million, according to Wells Fargo analysts, implying a valuation multiple of 25 times. They also estimate cost savings of $1.2 billion, which would help close the gap, as could a multi-billion-dollar cash infusion from Skydance’s backers. That may involve Oracle founder Larry Ellison. His son, David, runs Skydance.

The whole transaction sounds overly complicated and iffy in terms of value creation. Apollo’s mooted offer of $26 billion in cash, meanwhile, is simple. It implies $21 a share, double where Paramount trades, if voting and non-voting stock is valued equally.

Many investors are trying to steer Paramount in the right direction. Pressure is mounting, as four Paramount board directors have decided not to seek reelection, while some shareholders are pushing to be given a vote on any deal. If they succeed, it should produce a more uplifting finale.