By Nicholas Jasinski
Large shareholders of Paramount Global are unhappy about the media company's reported sale process, noting a deal might favor controlling shareholder National Amusements over other Paramount investors. Nor are they pleased by the sudden departure of Paramount's CEO ahead of a May 3 deadline to reach an agreement with one of the company's several suitors.
"It's just extraordinary," John W. Rogers, Jr., chairman and co-CEO of Ariel Investments, tells Barron's. "I've been doing this for 41 years and I've never seen anything like this process."
Ariel is among Paramount's 10 largest shareholders, with more than 11 million nonvoting B shares disclosed at the end of 2023, or close to 2% of the total.
Paramount has been on the selling block since the fall, pursuing acquisition talks with numerous parties. Warner Bros. Discovery, Allen Media Group, Sony Pictures Entertainment, Apollo Global Management, and Skydance Media have all reportedly been in talks with or interested in acquiring the company or National Amusements, which is controlled by Shari Redstone.
Paramount is currently nearing the end of a 30-day exclusive negotiation period with Skydance, a production company helmed by David Ellison, the son of Oracle co-founder Larry Ellison. Based on reported details of Skydance's proposal, Skydance would first pay cash to take over National Amusements, which owns the majority of Paramount's voting shares. Paramount and Skydance would then merge in an all-stock transaction, resulting in potentially significant dilution for remaining shareholders. The Paramount-Skydance exclusive window ends on Friday.
Mario Gabelli's Gamco Asset Management and Gabelli Funds are the largest non-Redstone holders of the voting A shares, which trade under the ticker PARAA. National Amusements owns more than three-quarters of the voting shares, while Gabelli's firms hold a combined roughly 15%.
Gabelli takes issue with the reported Skydance proposal, which likely would give Redstone's National Amusements a premium over other shareholders. "From my point of view, it's 'show me the money,'" says Gabelli, quoting the Sony-distributed 1996 film Jerry Maguire, starring Tom Cruise. "I would like my clients to get the same value that [Redstone] gets."
On April 29, after the market's close, Paramount released first-quarter results and announced that CEO Bob Bakish would step down. He became CEO of Viacom in 2016, staying in the role after the company's merger with CBS in 2019. Bakish's replacement on an interim basis is a so-called Office of the CEO that includes three Paramount division heads. Four members of the company's board of directors stepped down earlier in April.
The change at the top of the company comes during a busy and potentially transformative time for the business. Paramount is in the midst of renewal negotiations with Charter Communications, the nation's second-largest cable company, for carriage of its cable channels, still the company's cash cow. The streaming segment is rapidly growing revenue and subscribers, but has yet to turn a profit. Meanwhile, Paramount competitors such as Netflix and Walt Disney aren't sitting still.
"It has been such a disruptive and stressful process, and to fire the CEO in the midst of it...that's just unprecedented," Rogers says of the sale proceedings. "It's especially disheartening because he and his team had been so committed to doing what was right for all shareholders."
Paramount stock has fallen more than 70% in the past three years, to a recent $12. The company had a recent market value of around $8.5 billion, and net debt of $13.4 billion.
Rogers favors a combined Sony-Apollo bid for Paramount, for a reported $26 billion. While Paramount's strategy has been to pivot the company to a direct-to-consumer business model in the streaming era, Sony has focused on licensing its library to other media companies.
"It would bring both financial expertise and media expertise, and at a fair price for everyone," Rogers says. "Sony has done a great job of being an arms dealer, while Paramount has gone in another direction. So I think you'd get the best of all worlds here -- it just makes sense."
Both Rogers and Gabelli are sticking with Paramount stock. "At the end of the day, it's still a great collection of assets trading at a low [valuation multiple]," Gabelli says.
Adds Rogers: "So many smart investors have seen value in this...We're bargain hunters. As Warren Buffett always says, you want to be greedy when others are fearful. There's a lot of value there."
Buffett's Berkshire Hathaway was the largest holder of Paramount's nonvoting shares at the end of 2023, but had been selling shares last year. The conglomerate's first-quarter holdings will be released by May 15.
Write to Nicholas Jasinski at nicholas.jasinski@barrons.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
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April 30, 2024 14:33 ET (18:33 GMT)
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