Yahoo Finance After Failed Sale, Paramount’s New Leaders Have a Mandate to Execute Their Plan | Analysis
Now that Shari Redstone has scuttled the sale of Paramount, it is up to Brian Robbins, Chris McCarthy and George Cheeks to right the listing Hollywood ship.
To do so, they have a plan, which they presented to the Paramount board last week. It includes divesting assets including the studio lot in order to reduce the entertainment company’s crushing $14.6 billion debt, finding a streaming partner and cutting $500 million of costs in areas that include real estate and technology.
While the executives — all seasoned leaders from Paramount divisions — have stated internally and externally that they have remained focused on their strategy, the reality is that they did not have a proper mandate to execute until this week.
The sinking of the Skydance deal on Tuesday, when majority shareholder Redstone decided to pull the plug on selling the company, should buy the three executives time to execute their strategy. Or will it?
Giving the Office of the CEO runway for its strategy would presumably give Redstone time to weigh her options and offer clarity on the regulatory situation in the U.S. following November’s presidential election.
In other words, Redstone and National Amusements may not be done looking for a sale or other strategic alternatives, analysts say.
“A Trump presidency vs. Biden could open a far wider array of bidders for all or parts of Paramount,” Lightshed Partners analyst Rich Greenfield wrote in a blog post Wednesday. “We suspect the next 12-18 months is a ‘pause’ in the Paramount M&A process, not the end.”
In a memo to staff on Wednesday, the Office of the CEO wrote that “work is already underway” on its long-term strategic plan, which it is “confident will set the stage for growth for Paramount.”
But the executives also noted that the board remains “open to exploring strategic alternatives that create value for shareholders.” The trio will update employees on its strategic plan at a town hall less than two weeks from now on June 25, and update Wall Street during Paramount’s second quarter earnings call in August.
National Amusements, which controls 77% of Paramount’s voting interest, has expressed support for the trio’s strategic plan. But Redstone may still choose to sell that holding company separately. Paramount’s current “untenable situation” cannot go on indefinitely, Ariel Investments cofounder John Rogers Jr. told TheWrap on Wednesday.
“There’s going to be so many mergers in this industry because of the challenges that we all know the industry faces, and if they wait five years from now, all of your options are going to be closed,” Rogers said. “All the pathways to success will be shutting down systematically over the next five to 10 years.”
As Rogers explained, the marketplace is awash in private equity money today, but that may not last.
Some investors are still clamoring for Redstone to further explore the $26 billion cash offer from Sony Pictures Entertainment and Apollo Global Management, or to pursue another financial buyer.
Redstone also received interest in her controlling stake through National Amusements from Edgar Bronfman Jr. and Steven Paul. But a potential deal that changed ownership from one controlling shareholder to another wouldn’t immediately solve Paramount’s fundamental challenges.
The strategic plan
After former CEO Bob Bakish exited in April, the new Office of the CEO outlined a plan that includes a streaming joint venture or long-term strategic partnership, $500 million in cost cuts and asset divestitures. The executives also said they would integrate the company’s teams more closely and eliminate redundancies, potentially indicating reducing the company’s headcount, as well as taking an “alternative” approach to its international strategy to boost profits and increase content licensing.
Four individuals familiar with the matter previously told TheWrap that possible assets that could be on the chopping block include Pluto TV, BET, VH1 and the Paramount lot, which would be leased back for the studio’s use.
“If you are exiting the Paramount+ streaming business and focusing on maximizing the value of licensed content, we suspect Paramount can generate far more [revenue] from licensing AVOD content to third-parties vs. internally to Pluto,” Greenfield said. “In turn, exiting Pluto TV would likely be smart.”
CFRA Research Director Ken Leon outlined two options for the executives to pursue: becoming a profitable content provider by disposing of Paramount’s local TV broadcast stations and selling Paramount+ to another streaming provider, or considering formal bids to acquire 100% of Paramount’s shares and doing asset sales to raise cash and reduce debt.
Paramount, whose stock has fallen 29% in the past six months and 33% in the past year, reported a market capitalization of $7.7 billion as of Wednesday. The company’s streaming business also has a long way to go to reach profitability. The company currently expects Paramount+ to reach the milestone domestically in fiscal 2025. An added layer to the challenge is the company’s linear TV business, which like its competitors, continues to be a melting ice cube.
Will three become one?
Ultimately, Greenfield does not expect the Office of the CEO to survive beyond the next few months.
Notably, Chris McCarthy was previously designated as interim principal executive officer on May 1 for purposes of the rules and regulations of the Securities and Exchange Commission. The trio was also added to the company’s executive change of control severance protection plan, also known as a golden parachute.
“We suspect Paramount will look to appoint a dedicated CEO, with the three current CEOs reporting to the new CEO,” Greenfield said.
“We continue to believe that Redstone/National Amusements is likely to appoint current Paramount board member and former Viacom board member, Charles Phillips, as CEO.” Phillips is known to be close to Redstone.
Greenfield added that, ironically, Phillips was previously a senior executive and board member of Oracle, the company founded by billionaire Larry Ellison — the father of Skydance founder and CEO David Ellison.
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