Paramount has decided to formally enter 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 night.
A special committee of Paramount’s board met on Saturday and approved the start of deal talks with Sony and Apollo, which last week submitted a letter of interest valuing the company at $26 billion, the people said. . The committee also decided to push for new negotiations with Skydance, a studio founded by tech scion David Ellison.
Paramount, owner of Nickelodeon, MTV, CBS and Paramount Pictures, has been exploring a deal as it faces industry-wide headwinds, including the decline of cable television and the unprofitability of its streaming businesses.
Any agreement between the Sony group and Paramount faces obstacles. Government regulations restrict foreign ownership of broadcast networks and would likely prevent Sony’s Japan-based parent company from owning CBS outright. The bidding group would likely push for U.S.-based Apollo to have the rights to CBS’ broadcast license, according to two people familiar with its strategy.
Government regulators have also aggressively evaluated acquisitions under President Biden, with the Justice Department and the Federal Trade Commission moving to block a number of proposed deals. Not all of these measures 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 new bidders an additional incentive to secure approval, although National Amusements has pledged to support the special committee’s decision.
Sony and Apollo’s cash offer has been supported by many shareholders as an alternative to a merger with Skydance. Late last year, Shari Redstone, who controls National Amusements, signed a potential deal to sell her stake to Skydance, but that deal hinges on a related transaction for Skydance to merge with Paramount. The deal stalled last week after the two sides failed to reach an agreement after a month of exclusive negotiations. Shareholders were pessimistic about the deal, saying it would enrich Redstone at their expense.
Under the terms currently contemplated in the Sony-Apollo alliance, Sony would be a majority shareholder, and Apollo would own a minority stake, according to two people familiar with the bidders’ strategy. Sony executives have discussed operating the Paramount studio as a division of its larger empire, uniting the studios behind the “Spider Man” and “Mission: Impossible” franchises and combining their theatrical marketing and distribution operations.
Although the finer points of the deal have yet to be detailed, Sony and Apollo have discussed putting Paramount, which includes the Paramount+ streaming service and the CBS streaming network, into a joint venture, the two people said. One scenario being discussed is allowing Apollo to sell its minority stake to Sony within a few years, which would allow Sony to consolidate its ownership of the company.
It’s unclear what Skydance will do next. Last week he sweetened his offer to Paramount, offering a $3 billion investment to buy back shares and pay down debt, but that additional incentive wasn’t enough to push the deal over 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 raise the price for another bidder.
Paramount is still interested in a possible deal with Skydance and has even offered to cover the company’s legal fees, a person familiar with the matter said.