Stock of Paramount Falls After Analysts See 'obstacle Course' in Battle for Control

Paramount Global Inc.'s stock experienced an 8.4% decline on Thursday, halting a two-day streak of gains, as analysts observed that the ongoing struggle for control of the company, anticipated to unfold over the next month, presents a challenging situation.

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The stock, identified by the ticker PARA, had witnessed notable increases in value during the preceding two sessions amidst reports indicating that the company had entered into exclusive negotiations for a 30-day period with Skydance Media, an independent production company led by David Ellison, the son of Oracle founder Larry Ellison. Skydance has a history of collaboration with Paramount on various projects, including the upcoming "Top Gun: Maverick."

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According to The Wall Street Journal, Shari Redstone, who holds control of Paramount through her family's ownership of its parent company, National Amusements, favored Skydance's proposal over a $26 billion all-cash offer from private-equity firm Apollo Global Management. This preference was reportedly due to concerns regarding Apollo's financing. Redstone, daughter of the late Paramount Chief Executive Sumner Redstone, has been purportedly interested in selling a controlling stake in National Amusements since the previous year.

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Paramount encompasses a diverse range of media assets, such as its eponymous movie studio, CBS, cable channels like Nickelodeon, Showtime, Comedy Central, and the Paramount+ streaming service. Skydance aims to merge the studios of both companies, although this necessitates a subsequent agreement subject to approval by an independent committee tasked with overseeing the process. The committee's mandate includes ensuring that any deal benefits all shareholders, not just National Amusements, as reported by the Journal.

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Analysts at Bernstein expressed likely disappointment regarding the rejection of Apollo's bid, which implied a 50% premium to the equity prior to the recent downturn. They remarked that while this premium is lower than previous highs, it still represents a significant offer for an asset confronting structural challenges. The analysts also questioned the board's apprehension about financing, suggesting that Paramount could have safeguarded against potential financing issues with appropriate clauses.

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Regarding Skydance, analysts noted the complexity of the proposed deal, even for experienced merger and acquisition professionals. Bernstein maintained an underperform rating on Paramount's stock.

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Rosenblatt analysts concurred that shareholders might have favored Apollo's cash premium over retaining Paramount's status as a publicly traded entity. Analyst Barton Crockett suggested that at some stage, Skydance may consider breaking up the company to focus primarily on content creation, rather than managing TV networks.

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Wolfe Research analysts acknowledged tension surrounding the valuation of the company but upgraded the stock from underperform to peer perform. They anticipate approval of a deal with Skydance, speculating that Skydance's integration proposal would benefit all shareholders. In the event that a deal falls through, they estimate a share price of $11.90, below Thursday's closing price above $12, which they interpret as indicating limited risk at current levels.

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Despite a 19% increase in the month-to-date, the stock has declined by 16% year-to-date, making it the second worst performer in the S&P 500 on Thursday and the most actively traded stock.

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