Skydance and Paramount Negotiating Deal to Merge, Control of the Studi Will Shift

The influential film and television studio, Skydance, is in negotiations to merge with Paramount. This shift would signal a change in control of the studio from Shari Redstone to David Ellison and his backers. The deal is complicated, and the month-long exclusive negotiating period is expected to be extended.

Here are the rough outlines of the deal:

  1. Redstone would receive around $2 billion for a majority stake in her family holding company, NAI, which controls Paramount, the National Amusements theater chain, and other real estate assets.
  2. After this deal, Paramount would acquire Skydance in an all-stock deal valued at around $4-5 billion.
  3. The new owners of Paramount, led by Larry Ellison and RedBird Capital, would invest a few more billion dollars in the company.

The final company would remain publicly traded and wholly integrated, with Paramount's current assets kept intact.

However, there has been opposition to this deal from investors in Paramount, who own the more liquid but non-voting Class B shares of the company. They argue that the deal does not offer a takeout premium for them and that it is essentially a controlled company because of the dual-class shares. Institutions have threatened to sue Redstone and the board for breach of fiduciary duty.

Sony and Apollo, respectively, are waiting in the wings in case the Skydance deal falls through. Sony would likely be offered an exclusive negotiation window if this were to happen.

There is a litany of hurdles to be jumped for both deals, including shareholder and regulatory approvals and the objections of talent and their agents regarding fewer production opportunities.

Skydance is looking at a restructuring of Paramount that would centralize functions across CBS, cable, BET, and Nickelodeon. This would be a radical restructuring of the company to reduce linear costs and boost margins - a formula that has not yet been realized in the industry as cord-cutting continues.

Paramount's first-quarter earnings, to be released next week, will include a $1 billion charge related to layoffs and programming changes. The company has also warned of high debt and streaming losses.

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