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Skydance, Paramount Global Deal: Wall Street Analysts Comment

Skydance, Paramount Global Deal: Wall Street Analysts Comment

After months of back-and-forth, Shari Redstone has finally agreed to sell control of Paramount Global to a consortium led by Skydance Media, led by David Ellison, and RedBird Capital. Hours after an investors presentation, Wall Street analysts on Monday shared their latest takes on what Skydance’s acquisition of Redstone’s majority stake in National Amusements (which in turn controls Paramount) would mean for the companies.

The deal is structured in a way that Paramount will acquire Skydance, which will then install its leadership team at Paramount, led by Ellison as CEO and former NBCUniversal CEO Jeff Shell, who has been working at RedBird and will be running the company day-to-day as president. Skydance expects to end up owning 70 percent of shares outstanding.

Skydance had to sweeten its deal offer in hopes of ensuring more value for non-voting Paramount shareholders who had complained that initial deal offers had guaranteed Redstone a premium but would have diluted them, giving them the short end of the stick.

The mega-deal includes a so-called “go-shop” provision, meaning Paramount can “actively solicit and evaluate alternative acquisition proposals” for 45 days. As of noon. ET, Paramount shares were down 3 percent at $11.45.

CFRA Research analyst Kenneth Leon cut his Paramount stock rating from “buy” to “hold” on Monday and his price target by $4 to $12. “We are positive on the announced merger with Skydance Media that will acquire 100 percent of NAI,” he said. “For existing public Paramount Class B, shareholders will receive a cash offer of $15.00 (up to $4.3 million), and non-NAI Class B shareholders who do not receive cash will get one new Paramount Class B share for each existing Class B share owned. Although the deal is expected to close by the end of September, this was a complex transaction that is less than a full buyout of Paramount shareholders.”

Leon’s downgrade also signals he doesn’t see much stock upside at current levels. The expert also highlighted that it may not all be smooth sailing for the new entertainment giant, arguing: “We think the new company has major opportunities for content production and distribution, but the challenges of competing in today’s disruptive movies and entertainment industry remain.” His conclusion: “New company financial targets may be achievable in 2026 and 2027 on revenue and earnings before interest, taxes, depreciation and amortization) EBITDA, but we want to monitor developments in 2024-2025 to gauge progress.”

UBS analyst John Hodulik, who has a “sell” rating with a stock price target of $11, wrote in an initial reaction: “Terms in line with press reports, including 48 percent of non-NAI Class B holders able to sell at $15 per share.” His estimate is that “the pro forma company trades at around seven times 2025 estimated EBITDA, versus Warner Bros. Discovery, Fox Corp. and AMC Networks at four to six times.” And he emphasized: “Expect refreshed, tech-driven strategy but still see backdrop as difficult.”

Meanwhile, Barrington Research analyst Jim Goss stuck to his “market perform” rating without a price target. His takeaway as summarized in his report’s headline: “Merger Identifies Substantial Synergy Opportunities, Adds Scale.”

The expert also pointed to the debt benefits, highlighting an “improved balance sheet” following the merger. “The deal will facilitate debt reduction, along with the ability for up to 50 percent of Class B shares to be tendered to the recapitalized company at $15 per share. This of course is well above current trading levels, which can provide some immediate partial upside or value capture, though determination of a trading level following that event is an element of uncertainty.”

Goss also touched on possible alternative bidders, emphasizing: “The addition of a 45-day go-shop provision provides potential for additional upside, though the company has been in the market for some time,” so “a better overall deal for shareholders seems unlikely.”

The analyst then ran through key units and how Skydance is likely to run them. For example, he cited an “emphasis on managing linear for cash flow” amid continued cord-cutting, detailing: “The incoming management team recognizes the value of the CBS network and the linear cable brands along with the dynamics of that business, prompting a need to manage those brands for cash flow.”

Goss also predicted “increased studio heft” for the merged firm. “Skydance has partnered with Paramount for over a decade across various blockbuster franchises, and the transaction will unify rights to some important properties,” he explained. “Additionally, the merger with Skydance will add to the animation capabilities, along with Skydance’s two gaming studios.”

Finally, Goss discussed the streaming future of the combined company. “Focusing on profitability in direct-to-consumer (DTC), which may lead to more licensing outside the company’s platforms, will be an important part of the strategic roadmap,” the analyst wrote. “Being a part of bundles to ensure robust distribution was highlighted as an imperative to achieve success in streaming. Increasing the technological emphasis of the company was identified as an important initiative to increase competitiveness for the services, with enhancements to the user experience and improvements to creativity and efficiencies.”

Benchmark analyst Daniel Kurnos is more bullish on Paramount’s stock than others, sticking to a “buy” rating and a $19 stock price target.

“After days, weeks, and months of insinuation, speculation, complication, and pretty much any other
‘-ation’ one can think of, we finally have an official announcement,” he started off his report, adding that it “should, hopefully, bring about a close to this real-life drama.” While the 45-day go-shop window “could also easily throw a wrench into the equation,” he highlighted: “Our gut feel, however, is that this is probably the best strategic deal Paramount is likely to be offered that comes closest to satisfying all parties, at least in part.”

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Calling Skydance’s estimates and forecasts for the combined firm “very achievable” Kurnos believes that “there could be meaningful upside to the operating income before depreciation and amortization (OIBDA) projections.” His takeaway: “Therefore, understanding that the road will likely be very uneven, we think shares are worth a shot at the current price, as only a derailment of the deal (regulatory, legal, etc.) seems likely to break this new floor.”

The Paramount deal news also drew commentary beyond Wall Street. Paolo Pescatore, analyst at PP Foresight, in a report described the transaction and the new sector biggie’s challenges this way: “An end of an era with further bumps ahead as it begins a new chapter. Hollywood is undergoing major disruption and now is a better time than any to get out. Scale is paramount in this economy, and it will take considerable time for this deal to see tangible benefits. New ownership means change in thinking and approach which is needed, but streamers are moving in stealth mode.”

Asked if a better bid may emerge amid past expressions of interest from the likes of Sony Corp., Barry Diller, and Edgar Bronfman Jr., the expert told THR: “As is always the case, others have expressed an interest and will be sniffing around.” And he highlighted: “Ultimately any moves with potential rivals (such as Warner Bros. Discovery) will be under further regulatory scrutiny and will represent a major obstacle. Concessions will need to be made, such as asset disposals, which will be a bitter pill to swallow.” And some media may look at Paramount, “jostling for position to get up to speed in the streaming wars,” even if they have debt loads that make a deal challenging, Pescatore argued.

Paramount and Skydance are, of course, bullish on their deal.

“Given the changes in the industry, we want to fortify Paramount for the future while ensuring that content remains king,” Redstone said. “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.”

Said Ellison: “This is a defining and transformative time for our industry and the storytellers, content creators and financial stakeholders who are invested in the Paramount legacy and the longevity of the entertainment economy.” He added: “We are committed to energizing the business and bolstering Paramount with contemporary technology, new leadership and a creative discipline that aims to enrich generations to come.”

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