According to three people familiar with the matter, Paramount has decided to formally begin negotiations with a bidding group led by Sony Pictures Entertainment and private equity giant Apollo. The move comes after an exclusive negotiation period with Hollywood Studios Skydance ended on Friday night.
A special committee of Paramount's board of directors met Saturday and signed off on the start of deal negotiations with Sony and Apollo, with the companies signing a non-binding interest payment last week to acquire the company for about $26 billion in cash, according to people familiar with the matter. He has submitted a recruitment letter. The committee also decided to proceed with further negotiations with Skydance, the studio founded by tech mogul David Ellison.
Paramount, owner of Nickelodeon, MTV, CBS and Paramount Pictures, has been seeking partnerships as it faces industry-wide headwinds, including the decline of cable TV and an unprofitable streaming business.
Any deal between Sony Group and Paramount faces hurdles. Government regulations limit foreign ownership of broadcast networks and could prevent Sony's Japan-based parent company from fully owning CBS. The bidding group will likely ask U.S.-based Apollo to retain rights to the CBS broadcast license, according to two people familiar with the bidding group's strategy.
Government regulators are also actively evaluating acquisitions under President Biden, with the Justice Department and Federal Trade Commission moving to block many proposed deals. Not all of these moves by regulators have been successful.
It also remains to be seen whether Paramount's parent company, National Amusements, will support Sony and Apollo's bid. Although National Amusements is committed to supporting the special committee's decision, National Amusements has the power to veto any transaction and secure approval for new bidders. We are giving special incentives for
Sony and Apollo's all-cash acquisition proposal has been supported by many shareholders as an alternative to a merger with Skydance. Late last year, Shari Redstone, who controls National Amusement, signed a potential deal to sell her stake to Skydance, but that deal hinged on a related deal that would see Skydance merge with Paramount. The deal stalled last week after the two sides were unable to reach an agreement after a month of exclusive negotiations. Shareholders were bearish on the deal, saying it would enrich Ms. Redstone at their expense.
Under the terms currently being considered for the Sony-Apollo partnership, Sony would become the controlling shareholder and Apollo would hold a minority stake, according to two people familiar with the bidders' strategies. Sony executives are discussing running Paramount Studios as a division of their larger empire, merging the studios behind the “Spider-Man'' and “Mission: Impossible'' franchises and combining theatrical marketing and distribution operations.
Details of the deal have not yet been disclosed in detail, but Sony and Apollo have discussed bringing Paramount (which includes the Paramount+ streaming service and CBS broadcast network) into the joint venture, both people said. One scenario currently being discussed is for Apollo to sell a minority stake to Sony within a few years, allowing Sony to consolidate ownership of the company.
It's unclear what Skydance will do next. The company last week softened its offer to Paramount, proposing a $3 billion investment for stock buybacks and debt repayments, but the additional incentives weren't enough to push the deal to the finish line. Skydance could still improve its bid, but one person familiar with the company's strategy said it had no intention of continuing to negotiate just to jack up the price for another suitor.
Paramount remains interested in a potential deal with Skydance and has even offered to cover the company's legal costs, the people said.
It's unclear how Sony and Paramount's approaches to the entertainment business will mesh. Paramount follows Netflix in opting for a direct-to-subscriber business, with more than 71 million paying customers worldwide. Sony is eschewing its own streaming business and instead sells TV shows to entertainment conglomerates like Netflix and Disney.
Meanwhile, Paramount is preparing for the possibility that both deals fall through. The company will replace CEO Bob Bakish and be run by three division heads: Brian Robbins, CEO of Paramount Pictures, and CEO of Paramount Pictures. The CEO's office has just been set up. Chris McCarthy, CEO of Showtime and MTV Studios. and George Cheeks, CEO of CBS. They are preparing to announce new long-term plans for the company.
The company is also considering streaming joint ventures with a number of potential partners, including Comcast, which operates the Peacock streaming service, one of the people said.