Paramount's board approved the merger deal with Skydance on Sunday, according to two people familiar with the negotiations, ushering in a new era for CBS, Nickelodeon and the film studio behind the “Top Gun” and “Mission: Impossible” series.
The deal marks a turning point for the Redstone family, whose fortunes have been intertwined with the rise and fall of the traditional entertainment industry during the tumultuous decades they owned Paramount and its predecessors. Mr. Redstone, chairman of Paramount's board of directors, is cashing out much of his ownership stake in the company he fought to protect and control.
The merger will create a new Hollywood heavyweight: David Ellison, the tech mogul behind Skydance, will become Paramount's top power. The deal is in some ways a broader representation of media history, with a traditional entertainment fortune being largely replaced by one made in technology. Mr. Ellison is the son of Oracle founder Larry Ellison. The Ellisons' deep pockets were a big selling point for the Redstones, who were looking to shore up Paramount for the long term.
In recent years, Paramount has become a representative example of a traditional media industry that has limped along in the shadows of streaming giant Netflix and tech companies like Amazon, which have deep pockets to pour into media. It has tried to replace its fading cable TV business with streaming ventures like Paramount+, but those efforts have not been as profitable as its traditional TV business.
The total value of the merger was not immediately clear due to the complexity of the deal. Skydance and its investors will buy National Amusements, which holds the voting stock of Paramount's Redstone family, for about $1.75 billion. Paramount will also merge with Skydance, giving the studio and its investors control of a media empire that includes film, TV and news properties.
Paramount's market capitalization — the value the stock market gives the company — is about $8.2 billion. Skydance's last public valuation was more than $4 billion.
Skydance's tender offer would allow many of Paramount's non-voting stockholders to sell their shares for about $15 a share, while voting stock investors could sell for $23 a share, allowing investors who feel they lost out on the Skydance acquisition (and there are many) to get out of the company at a higher price than the current share price of $11.81.
The Skydance merger would close a chapter for the 70-year-old Redstone, who followed in his father Sumner's footsteps and has fought to protect his family's media empire.
Skydance's acquisition of Paramount has become a drama worthy of a summer blockbuster. Since the beginning of the year, Mr. Redstone, Paramount and Mr. Ellison have been engaged in semi-public negotiations, the contents of which have frequently been leaked to the press and have soured relations between the two sides.
Executives appeared close to a deal last month, but the renegotiated terms made Mr. Redstone's controlling stake less valuable, and just as a special committee of Paramount's board was preparing to make it public, Mr. Redstone's lawyers emailed them to tell them to abandon the deal, saying they couldn't reach it on “uneconomic terms.”
The freeze on the deal saw other suitors emerge to court Mr. Redstone, including billionaire Barry Diller and “Baby Genius” producer Steven Paul. But the Skydance deal was relaunched last week, with Skydance raising its offer for Mr. Redstone's stake and offering stronger protections against lawsuits.
Those provisions could help mitigate challenges from investors who have opposed a Skydance merger that they say would benefit Mr. Redstone at the expense of other shareholders. All of the Skydance deals considered guaranteed additional compensation, typically called a control premium, in exchange for Mr. Redstone's voting power, which some shareholders have argued is unfair. A minority of shareholders have threatened to sue.
The merger comes at a precarious time for Paramount. Its flagship streaming service, Paramount+, is bleeding hundreds of millions of dollars in cash annually. After feuding with Mr. Redstone, Chief Executive Bob Bakish has replaced three executives with one running an “Office of the CEO,” but it's a messy, temporary fix. And its cable business is in long-term decline, with its stock price down more than 70% in the past five years.
Last month, Paramount's three chief executives proposed a plan that they said would help get Paramount back on track, including cutting costs by $500 million and selling parts of the company that aren't central to the strategy. Losses on Paramount+ have begun to fall, and the company is exploring possible joint ventures with other companies that could reduce costs further.
Taking over the reins of the struggling company will be Ellison, a Hollywood producer and executive who has bankrolled some of Paramount's biggest franchises. After dropping out of USC to try his hand at acting, Ellison began financing films and founded Skydance in 2010. The company has produced some of Paramount's most successful movies, including “Top Gun: Maverick” and “Mission: Impossible – Dead Reckoning Part 1,” in collaboration with Paramount.
Mr. Ellison, 41, plans to bring his own cast to Paramount. Former NBCUniversal Chief Executive Jeff Shell is in talks to take a key role, according to two people familiar with the matter. Mr. Shell was fired by NBCUniversal last year after a CNBC anchor filed a sexual harassment complaint against him. Late last year, he became chairman of sports and media at RedBird Capital Partners, the firm that backs Skydance.
Bakish, 60, will remain with Paramount as an adviser. He will work for the company through October and will receive a salary of $258,333 plus benefits, according to his severance agreement filed in May. The terms of his departure also include a two-year non-disparagement agreement.
Mr. Ellison has not spoken publicly about his plans for Paramount, but he has briefed the company's board, two people familiar with the matter said. Mr. Ellison has discussed the possibility of partnering with one or more of Paramount's rivals to launch a streaming service. He also plans to rapidly strengthen the company's technology and add greater personalization features to its streaming services.
Another pillar of Skydance's plan for Paramount is cost-cutting: The company plans to consolidate some international operations and boost profits, including by laying off some employees — a move that is unlikely to win Ellison much support from the company's rank-and-file but may please shareholders.
