By Dan Gallagher
What Paramount Global will look like a year from now is far from certain. Perhaps the only certainty is that getting there will be a rough ride.
This was essentially confirmed by the company's first-quarter report Monday afternoon. The numbers themselves were fine, with the Super Bowl providing a strong boost to advertising revenue and even helping lift subscribers to the Paramount+ streaming service. But the financial results have become a sideshow to the company's ongoing merger drama, which got its latest twist Monday with the announced departure of Chief Executive Bob Bakish.
Bakish has run Paramount since the company was created by the merger of Viacom and CBS in 2019, and he ran Viacom for three years before that. He was also reported -- by The Wall Street Journal and others -- to be on the outs with controlling shareholder Shari Redstone, due in part to his lack of enthusiasm for a proposed buyout deal with Skydance Media. In his place, three top Paramount executives have been named to the Office of the CEO -- with not a word in the announcement or in the company's very brief earnings call afterward about seeking a permanent replacement.
Given that dual-CEO structures rarely work, the likelihood of a troika successfully running a large enterprise together over the long or even medium term is slim. The move instead seems to be the latest confirmation that some sort of deal is nigh. And it is likely to be the one proposed by Skydance that is favored by Redstone -- and disfavored by nearly every other Paramount shareholder. Bakish's exit follows the departure of four board members earlier this month. Three of those were on an independent committee tasked with ensuring any merger deal would benefit all of the company's shareholders. "We suspect this latest management change likely foreshadows a potential change of control," Citigroup analyst Jason Bazinet wrote to clients.
The remaining board members and Paramount's new trio of bosses still have their work cut out for them. Paramount's stock got a lift of nearly 3% during Monday's regular session following reports that Skydance sweetened the terms of its bid. But the stock is still down 27% since reports of Skydance's interest first emerged in early December. Most of Paramount's other shareholders seem to favor a reported $26 billion offer from private-equity giant Apollo Global Management, which might include the backing of Sony. "The current quarter's performance should make Paramount more attractive to Sony/Apollo," said David Katz, chief investment officer of Paramount shareholder Matrix Asset Advisors.
But even that deal would face obstacles. Sony and Paramount are the fourth and fifth largest movie distributors by box-office share, according to industry tracking site the Numbers. That would likely draw a critical eye from antitrust regulators, who have been particularly active in the tech landscape of late. In a report Friday, Doug Creutz of TD Cowen wrote, "We do not expect consolidation between any of the major studios in 2024, first and foremost due to regulatory issues."
Skydance, meanwhile, would need to complete a complicated merger with Paramount after taking control of Redstone's National Amusements, which holds the controlling stock in Paramount. The result there would likely be a Hollywood studio that would need to sharply slash costs while still figuring out how to compete in a streaming world dominated by Netflix. Paramount+ managed to add 3.7 million net new subscribers during the first quarter, which was well over the 2.2 million Wall Street expected but was also less than half the subscribers that the much larger Netflix added to its rolls over the same period.
And that was with Paramount showcasing the biggest TV event of the year -- with the year's biggest pop star in attendance, no less. Even the Super Bowl and Taylor Swift can't guarantee Paramount a happy ending these days.
Write to Dan Gallagher at dan.gallagher@wsj.com
(END) Dow Jones Newswires
April 30, 2024 09:00 ET (13:00 GMT)
Copyright (c) 2024 Dow Jones & Company, Inc.
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