Paramount has decided to formally open negotiations with a bidding group led by Sony Pictures Entertainment and private equity giant Apollo, according to three people familiar with the matter. The move comes after a period of exclusive talks with Hollywood studio Skydance ended on Friday evening.
A special committee of Paramount's board of directors met Saturday and signed off on the start of deal talks with Sony and Apollo, which took place last week. submitted a letter of interest valuing the company at $26 billion, the people said. The committee also decided to push for further negotiations with Skydance, a studio founded by technology scion David Ellison.
Paramount, which owns Nickelodeon, MTV, CBS and Paramount Pictures, is exploring a deal as the company faces industry-wide headwinds, including the decline of cable TV and the unprofitability of its streaming business.
Any deal between the Sony group and Paramount has hurdles. Government rules limit foreign ownership of broadcast networks and would likely prevent Sony's parent company, based in Japan, from fully owning CBS. The bidding group would likely push for U.S.-based Apollo to retain rights to the CBS broadcast license, according to two people familiar with their strategy.
Government regulators have also been aggressively evaluating takeovers under President Biden, with the Justice Department and Federal Trade Commission taking steps to block some proposed deals. Not all of these steps by regulators have been successful.
It also remains to be seen whether National Amusements, Paramount's parent company, will support the Sony-Apollo bid. National Amusements has the power to veto any deal, giving the new bidders an added incentive to secure its approval, although National Amusements has committed to supporting the special committee's decision.
Sony and Apollo's all-cash offer is supported by many shareholders as an alternative to a merger with Skydance. Late last year, Shari Redstone, who manages National Amusements, signed a potential deal to sell her stake to Skydance, but that deal is contingent on a related transaction for Skydance to merge with Paramount. The agreement stuck last week after the two sides failed to reach an agreement following a month of exclusive negotiations. Shareholders were bearish on the deal, saying it would enrich Redstone at their expense.
Under the terms currently being considered in the Sony-Apollo tie-up, Sony would be a controlling shareholder, with Apollo owning a minority stake, according to the two people familiar with the bidders' strategy. Sony executives have discussed operating the Paramount studio as a division of their larger empire, uniting the studios behind the “Spider Man” and “Mission: Impossible” franchises and combining their theatrical marketing and distribution operations.
While details of the deal have yet to be detailed, Sony and Apollo have discussed putting Paramount — which includes the Paramount+ streaming service and the CBS broadcast network — into a joint venture, the two people said. One scenario being discussed is that Apollo could sell its minority stake back to Sony in a few years, allowing Sony to consolidate its ownership of the company.
It's unclear what Skydance will do next. It sweetened his offer last week to Paramount, offering a $3 billion investment to buy back stock and pay down debt, but that extra incentive wasn't enough to get the deal across the finish line. Skydance could still improve its offer, but a person familiar with the company's strategy said it was unwilling to continue negotiating just to jack up the price on another candidate.
Paramount is still interested in a potential deal with Skydance and has even offered to cover the company's legal costs, a person familiar with the matter said.