Details of David Ellison bid

Skydance Media’s offer to acquire National Amusements and merge its studio with Paramount Pictures is not a conventional takeover. The question for Paramount Worldwide Shareholders might ask: Is this better than no deal at all?

Skydance made a unique pitch to Paramount Global’s special committee, responsible for accepting or rejecting deals, and to its investors, according to four people familiar with the offer’s parameters. Paramount Global would continue to be publicly traded. Skydance would hold either a substantial minority or majority stake in Paramount Global by merging its assets and raising new capital, which it would acquire with its private equity partners RedBird Capital Partners and KKR.

The consortium’s stake percentage in the new company could be around 45% or just over 50%, said the sources, who asked to remain anonymous because the discussions are private. No details have been specified and all are still subject to change, the sources said.

Spokespeople for Paramount Global and Skydance declined to comment.

The new equity will have a dilutive effect for existing shareholders. But it will align voting and economic control in a way that has not been the case with the Redstone family, which currently directly or indirectly owns 77% of Paramount Global’s Class A voting stock and 5.2 % of class B ordinary shares. approximately 10% of the company’s overall capital.

While David Ellison is primarily responsible for orchestrating the deal, his father, Oracle co-founder and chairman Larry Ellison would provide some of the new funding, the people said. It could also provide Paramount Global with access to Oracle’s artificial intelligence software and other data technologies.

Paramount Global owns many valuable historical media assets, including CBS, the Paramount Pictures studio and its physical estate, a studio library with films such as “The Godfather”, “Titanic” and “Forrest Gump” and cable networks such as Comedy Central and Nickelodeon. He also has a subscription streaming service (Paramount+) with over 67.5 million subscribers and a free, ad-supported service (Pluto TV) with over 80 million monthly active users.

However, it has struggled to grow in recent years. Paramount Global’s annual revenue for 2023 was $29.7 billion, down 1.7% from 2022. Paramount+ continues to lose money. Paramount Global’s debt rating was downgraded by S&P Global Ratings last month because the company’s broadcast and cable TV businesses are in decline as traditional pay TV subscribers cancel.

Paramount Global has a market capitalization of approximately $7.6 billion and had $14.6 billion in long-term debt at the end of 2023. When CBS and Viacom merged in 2019, the combined market value of business was about $30 billion.

Over the past decade, Oracle has successfully evolved from a traditional enterprise technology company to one focused on cloud services and AI. It’s a similar thematic model to what the Ellisons would like to do with Paramount Global — a legacy media company that must look to the future to justify its existence.

David Ellison would likely lead the new company. Former NBCUniversal CEO Jeff Shell, in his capacity as president of sports and media at RedBird, is also expected to play a major leadership role. Management would be open to divestitures that current CEO Bob Bakish considered but ultimately rejected, such as the sale of BET Media Group and Showtime, the sources said.

The new leadership would also evaluate more existential questions for Paramount Global, such as the future of Paramount+ and what the company’s role should be in a broader media ecosystem. No decisions have yet been made on these broader strategies, the sources said.

The transaction as proposed does not constitute a complete buyout of Paramount Global. That’s what Paramount Global’s board would prefer, but Ellison has been hesitant, the sources said.

Nonetheless, the message to investors will be that the combination of David Ellison, his father’s involvement, Shell, Skydance’s assets and its commitment to new media (including Skydance’s video game development studio ) is simply better for future growth than Redstone and Bakish.

Paramount Global’s special committee will have to decide whether Skydance’s complicated deal is better than the status quo — and also better than any other deal that might yet arrive. The two sides have entered into exclusive negotiations to conduct further due diligence and potentially reach an agreement within the next two months, the sources said.

There might still be other paths forward. Private equity firm Apollo Global Management recently launched a $26 billion bid for the entire company, The Wall Street Journal reported this week, but Redstone opted to move forward with Skydance talks exclusively. Redstone has been unofficially seeking a buyer for Paramount Global for years, according to people familiar with the matter. Apollo’s late offer could be an attempt to keep the private equity firm on the sidelines in case the Skydance deal falls through.

Discovery of Warner Bros. had preliminary discussions with Paramount Global but stopped working on a deal earlier this year, CNBC reported in February.

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Disclosure: NBCUniversal is the parent company of CNBC.