Sony and Apollo’s Plan for Paramount: Break It Up

Shari Redstone helped build Paramount Global into a sprawling media empire, but if Sony Pictures Entertainment and private equity giant Apollo Global Management succeed in acquiring it, they plan to split everything up, according to three people familiar with the matter.

The plan would see the CBS broadcast network, cable channels like MTV and streaming service Paramount Plus auctioned off, said the people, who asked not to be identified, sharing private details. Paramount Pictures, home to blockbusters like “The Godfather,” “Top Gun” and the “Mission Impossible” franchise, would be combined with Sony’s existing operations.

Sony and Apollo, which expressed non-committal interest in acquiring Paramount for $26 billion last week, will also likely retain Paramount’s library of films and TV shows as well as the rights to well-known characters , notably the Ninja Turtles and SpongeBob SquarePants. . They have not yet presented this plan to Paramount or its advisors.

A breakup of Paramount would represent a major changing of the guard in the entertainment industry. CBS and Paramount have been controlled by the Redstone family for decades, ever since media mogul Sumner Redstone brought the sprawling conglomerate together in a series of bold deals. His daughter, Shari Redstone, championed a 2019 deal to reunite it via a merger with CBS, and remains Paramount’s majority shareholder.

Sony and Apollo are now talking with Paramount’s financial advisers about the next steps for their proposal, the sources said. The two companies have not yet signed formal confidentiality agreements or begun due diligence reviews, a process that could take weeks.

Although it’s still early, both candidates have already begun to imagine how a Paramount deal could play out. The two men would likely operate the company as a joint venture controlled by Sony, with a minority stake held by Apollo, the sources said. Sony is reportedly looking to combine the marketing and distribution functions of the Paramount movie studio with its own operations and divest the remaining properties.

Over time, Apollo could sell its stake in the joint venture to Sony or another buyer. It’s not yet clear how much stake Apollo will have in the company, although the company plans to invest billions in the deal, one person said.

A dissolution of Paramount is not a preferred outcome for Ms. Redstone, who would prefer to see the company pass intact to another buyer, according to a person familiar with her thinking. But that wouldn’t necessarily be a compromise if the offer was attractive, the person said.

There are other contenders. Skydance, a media company founded by tech scion David Ellison, has been in discussions with Paramount for months about a potential deal for the company. Exclusive negotiations between Skydance and Paramount broke down last week, shortly after Sony and Apollo expressed interest. But Skydance remains interested in a possible agreement.

Sony and Paramount have different approaches to entertainment, and a deal would likely result in a dramatic turnaround for Paramount. Unlike Paramount, which broadcasts its content on Paramount Plus, Sony licenses its films and TV shows to companies like Netflix and Disney. Sony would likely not change this approach as part of a deal with Paramount and would likely seek to combine Paramount Plus with a rival service, such as Comcast’s Peacock or Warner Bros.’ Max. Discovery.

Sony has long sued Paramount’s film studio. Several years ago, Sony executives contacted Paramount to see if the company would be willing to sell Paramount Pictures or merge it into a joint venture, but Paramount rejected the approach, indicating that it was only interested in by an agreement for the entire company. So when Apollo made a bid for all of Paramount earlier this year, Sony decided to partner.

Any Sony deal would face regulatory hurdles. The regulations prevent foreign owners from holding licenses for U.S. broadcast stations, which could prevent Sony — part of the Japan-based Sony Group Corporation — from owning CBS-affiliated television stations. But they could divest the stations immediately or have Apollo apply for the license. They are also considering other options for stations.

The deal would also likely require clearance from the Committee on Foreign Investment in the United States, the Washington panel that reviews acquisitions by foreign owners.

When Sony and Apollo decide to sell Paramount’s assets, The companies believe there could be many logical buyers, the three sources said. Warner Bros. Discovery, which does not own a broadcast network, could be a contender for the CBS broadcast network. Television network groups like Nexstar and Tegna could be logical buyers for CBS’s owned-and-operated television networks.

The hardest asset to sell would likely be all of Paramount’s cable networks like MTV and Nickelodeon, but those could be sold to a TV programmer looking to negotiate on a larger scale with cable providers like Charter and Comcast.