Paramount Global Skydance Media is making progress on a deal that would merge the media companies and buy out controlling shareholder Shari Redstone, according to people familiar with the matter.
Paramount Global's special committee, responsible for approving or rejecting transactions, and David Ellison's Skydance Media, backed by private equity firms KKR and RedBird Capital Partners, are narrowing how, as well as how much, Skydance's assets will be valued as part of the merger. Shares will be added to the company as part of the recapitalization, the people told CNBC.
The two sides are close to agreeing on the value of Skydance, said the people, who asked to remain anonymous because the discussions are private. They said the entertainment company would be valued at about $5 billion and would be merged with Paramount Global. Skydance CEO Ellison and private equity firms plan to raise about $4.5 billion to $5 billion in new equity, the people said. Some of that amount — about $2 billion — will be used to pay off debt to Redstone, and another significant portion will be used to pay down debt.
Buyers ideally want to close the deal in May, the people said. Paramount Global was slow to provide data during due diligence to the Skydance consortium, delaying the deal's timeline slightly, three of the people said. The exclusivity window in merger talks expires on May 3, but the Skydance consortium wants to extend it by two weeks, the sources said.
Skydance plans to hire Ellison as CEO of Paramount Global and former NBCUniversal CEO Jeff Shell as president, two of the people said. Current Paramount CEO Bob Bakish will leave the company, the people said.
Separately, private equity firm Apollo Global Management and Sony have held preliminary discussions about collaborating on a deal that would buy out all of Paramount Global's shareholders at a premium, according to people familiar with the matter. The special committee has not received specific details about that offer and does not consider it a competitive bid for Skydance, two of the people said.
However, one of the people said the committee had more details about Apollo's initial offer, which it chose to ignore in favor of exclusive talks with Skydance. The special committee preferred Skydance's bid over Apollo's in part because it offered shareholders an upside future by maintaining a cleaner balance sheet for the company, the person said.
Spokespeople for Apollo, the Paramount Global Special Committee, Paramount Global and the Sky Dance Federation declined to comment.
Another big hurdle
One significant hurdle that remains is Paramount Global's renewal of its agreement with Charter Communications for CBS and its cable networks. The deal is relevant to Paramount Global's value, which could take a hit if Charter drops networks or agrees to a lower throughput, the people said.
The deadline for this agreement is April 30. Paramount Global reports first-quarter earnings one day earlier, on April 29.
Paramount Global still relies on its traditional television business, which represents about two-thirds of the company's total revenue.
There are signs that Charter could prove to be a tough negotiator with Paramount Global: Last year, the cable provider, the second-largest in the United States, briefly stopped operating Disney Networks when renewal negotiations between those two companies faltered. The two parties reached an agreement 10 days later.
Paramount's cable networks are much less popular than Disney's ESPN, which could put Bakish in a vulnerable position.
The timing of the renewal and deal talks created a strange dynamic, in which Bakish, who would eventually leave the company under the Skydance merger, would control Paramount Global's fate through a charter.
So far, Bakish has consistently reached renewal deals with major pay-TV distributors since taking over as CEO, dating back to his time running Viacom, starting in 2016.
Bakish has privately argued against the Skydance deal because it dilutes common shareholders, according to people familiar with the matter. Several Paramount Global investors have also publicly written letters to the company's board urging directors not to proceed with the Skydance deal, arguing that it gives Redstone an enormous premium for its controlling shares while leaving common shareholders out in the cold.
Under the terms of the deal, Skydance and its private equity partners will own approximately 50% of the company, CNBC reported on April 5. The rest of the company will be owned by common shareholders, and the company will continue to trade publicly.
“At Paramount, we're always looking for ways to create value for shareholders. And to be clear, this is for all shareholders,” Bakish said during his company's last earnings call in February.
Disclosure: Comcast is the parent company of NBCUniversal and CNBC.
