Paramount’s board on Sunday signed a merger agreement with Skydance, according to two people familiar with the negotiations, ushering in a new era for CBS, Nickelodeon and the movie studio behind the “Top Gun” and “Mission: Impossible” franchises. “.
The deal is a turning point for the Redstone family, whose fortunes have been intertwined with the rise and fall of the mainstream entertainment industry during the decades of tumultuous ownership of Paramount and its predecessors. Ms. Redstone, Paramount’s chairman, is cashing out much of her ownership in the company she has struggled to maintain and control.
The merger will anoint a new Hollywood mogul. David Ellison, the technology partner behind Skydance, will become the top power broker at Paramount. The deal is in some ways the story of numerous media outlets, with a family that made its fortune in traditional entertainment largely replaced by one enriched by technology — Mr. Ellison is the son of Oracle founder Larry Ellison. The Ellisons’ considerable resources were a major selling point for the Redstones, who were looking to strengthen Paramount for the long term.
In recent years, Paramount has become the poster child for a traditional media industry limping under the shadow of streaming giant Netflix and tech companies like Amazon, which have plenty of cash to spend on their media bets. Paramount has tried to replace its fading cable business with streaming businesses like Paramount+, but those efforts still aren’t as profitable as traditional TV businesses.
The full value of the merger was not immediately clear because the deal is complex. Skydance and its financial backers will acquire National Amusements, the company that owns the Redstone family’s voting stake in Paramount, for about $1.75 billion. Paramount is also merging with Skydance, leaving the studio and its backers in charge of a media empire that includes film, television and news companies.
Paramount’s market value — the value the stock market places on the company — is about $8.2 billion. Skydance’s last reported valuation was $4 billion.
An auction by Skydance would allow many holders of Paramount’s non-voting stock to cash out at about $15 a share. Investors who own voting shares will be able to sell at $23 per share. That will allow investors who feel shortchanged by the Skydance deal—there are many—to get rid of the company’s stock at a premium to its current price of $11.81.
The merger with Skydance closes a chapter for Ms Redstone, 70, who took over from her father Sumner and fought to keep the family media empire intact.
Skydance’s takeover of Paramount was a drama worthy of a summer hit. Since the beginning of the year, Ms. Redstone, Paramount and Mr. Ellison have been engaged in semi-public negotiations that were often leaked to the press and boiled down goodwill on both sides.
Executives appeared to be close to a deal last month. But the renegotiated terms reduced the value of Ms. Redstone’s controlling stake. As a special committee of Paramount’s board prepared to make it official, Ms Redstone’s lawyers emailed them to cancel the deal, saying they could not agree to “non-financial terms”.
With the deal on ice, other suitors appeared in Ms. Redstone’s court, including billionaire Barry Diller and Stephen Paul, the producer best known for the “Baby Geniuses” movie franchise. But the Skydance deal returned last week, with Skydance improving its offer for Ms Redstone’s stake and offering firmer protections against litigation.
Those provisions may help ease a challenge from investors who have opposed the Skydance deals, saying they would enrich Ms. Redstone at the expense of other shareholders. All of Skydance’s merger deals that have been considered have guaranteed it an extra reward in exchange for voting influence — commonly called a control premium — that some shareholders have argued is unfair. A small number threatened to sue.
The merger comes at a precarious time for Paramount. Its flagship streaming service, Paramount+, is hemorrhaging hundreds of millions of dollars in cash annually. After falling out with Ms. Redstone, its chief executive, Bob Bakish, was replaced by three executives, who run an “office of the CEO” — a difficult, temporary solution. And its cable business has been in long-term decline, sending its stock down more than 70 percent over the past five years.
In the past month, Paramount’s three chief executives have proposed a plan they say will help get Paramount back on track that includes cutting $500 million in costs and selling parts of the company that are not central to its strategy. Losses are beginning to slow at Paramount+, and the company is exploring a possible joint venture with other companies that could further reduce costs.
The man who will take control of the company he is raising is a producer and Hollywood executive who has helped finance some of Paramount’s biggest franchises. After dropping out of the University of Southern California to try his hand at acting, Mr. Ellison began financing films, founding Skydance in 2010. The company has produced some of its most successful films with Paramount, including “Top Gun: Maverick” and “Mission: Impossible – Dead Reckoning Part One.”
Mr. Ellison, 41, plans to bring his own cast to Paramount. Jeff Schell, the former chief executive of NBCUniversal, is in talks to take on a major role, two people familiar with the matter said. He was fired by NBCUniversal last year after a CNBC anchor filed a sexual harassment complaint against him. Late last year, he joined Skydance backer RedBird Capital Partners as president of sports and media.
Mr. Bakish, 60, remains a consultant to Paramount. His exit agreement, filed in May, says he will continue working for the company through October at a monthly salary of $258,333 and benefits. His severance package also includes a two-year non-severance agreement.
Although Mr. Ellison has not spoken publicly about his plans for Paramount, he has informed its board of his intentions, two people familiar with the matter said. Mr. Ellison has discussed the possibility of working with one or more of Paramount’s rivals on a combined streaming service. It also plans to supercharge the company’s technology, adding better personalization capabilities to its streaming service.
Another pillar of Skydance’s plans for Paramount is cost reduction. The company plans to consolidate some international operations, boosting earnings in part by laying off workers. That won’t win Mr. Ellison many fans among company executives, though it could help him please shareholders.
