Under its subsidiary Paramount Global (NASDAQ:PARA)Pictures, Paramount Global holds an extensive catalog of distributed mega hits, from Titanic and Transformers to Indiana Jones, Shrek, and Top Gun. However, the company’s profits have steadily declined since the end of 2021.
From 2021 to 2022, Paramount Global (NASDAQ:PARAA) tracked a 75% net income decline to $1.1 billion. The next year, the company was in the negative zone at a $0.6 billion net loss, having doubled its decline from 2022 to 155%.
Although having increased its year-over-year revenue by 13% ending June 2024, Paramount suffered $5.413 billion net loss. Ending April, Paramount CEO Bob Bakish resigned, replaced by a trio of executives: George Cheeks (CBS); Chris McCarthy (Showtime/MTV); and Brian Robbins (Paramount Pictures/Nickelodeon).
Their mission strategically positions Paramount Global ahead of the ongoing merger with Skydance Media. From an investor’s perspective, should this be taken as a signal for better times ahead?
The Latest Paramount Merger Status
Delivered on July 7th, Skydance Media and Paramount Global signed a definitive agreement to steer the company in a new direction. Under the leadership of David Ellison as Chairman and CEO, and Jeff Shell as President, New Paramount will be created under the following conditions:
- Skydance equity holders to receive 317 million class B shares at $15 per share, with Skydance valued at $4.75 billion.
- Skydance Investor Group to acquire regional movie theater chain National Amusements Inc. (owns 77% of Paramount Global voting power) for $2.4 billion (cash) and $4.5 billion for the stock/cash merger. Afterwards, $1.5 billion goes to Paramount’s balance sheet, totaling the investment to $8.4 billion.
- After the merger, Skydance Investor Group, headed by David Ellison, will own 100% of New Paramount class A shares and 69% of class B shares.
In other words, Paramount class B (PARA) shareholders will receive a 48% premium, as of July 1st, 2024. Likewise, they will have a 28% premium to class A shares (PARAA). To that end, Larry Ellison (80), the multi-billionaire founder of Oracle (NYSE:ORCL) and the majority holder of National Amusements, should have control of Paramount through his son David Ellison (41).
The ownership itself is through three ventures under Pinnacle Media that hold Ellison family’s interests. Pinnacle Media’s ownership accounts for 77.5% stake in National Amusements while the rest belongs to Gerry Cardinale-owned RedBird Capital Partners.
However, the Federal Communications Commission (FCC) is yet to fully approve the merger. It may be the case that the Justice Department could move to block the merger. After all, Larry Ellison is known to be a GOP donor through the Republican-aligned Opportunity Matters Fund.
Interestingly, Gerry Cardinale’s political contributions are also associated with the Republican Party.
While Larry Ellison has made contributions to the Democratic National Committee (DNC) in the past, the focus was largely on the GOP since 2014. In the meantime, his son David did pledge $929,600 for the election of Biden in April. Purportedly, this move came from the direction of the long-time Democrat donor and Hollywood mogul Jeffrey Katzenberg, who is also Biden campaign co-chair.
What Is Ellison’s Pitch to the FCC?
To bolster the merger case with the FCC, Skydance Investor Group centered the deal around new personnel, describing them as “highly qualified leadership team with proven expertise in the broadcasting, media, and technology industries.”
To curtail potential antitrust roadblocks, the filing notes that both the “Ellison family and RedBird do not have attributable interests in any other television broadcast licensees,”. Outside of Paramount Pictures, Paramount Global holds CBS, Comedy Central, MTV, Pluto TV, Paramount+ streaming service and Black Entertainment Television (BET).
CBS TV network alone operates across 28 local stations, for which Skydance assures they will “preserve and enhance” their legacy.
Are New Paramount’s Fundamentals Sound?
One of the major downfalls of Paramount Global was the loss of advertising revenue, as well as Hollywood writers’ strikes that disrupted and delayed many content production schedules.
In addition to advertising from TV networks dropping by 15% during Q1, licensing revenue declined by 25%, followed by a further 48% drop in Q2. During the Bakish leadership, the emphasis was on layoffs and boosting the streaming service.
This made sense after a 40% decline in theatrical revenues. As of Q2 2024 earrings, focus on streaming had some effect as Paramount+ increased revenue 46% year-over-year. The strategic plan is to push streaming to domestic profitability by 2025, aided by $500 million in annualized cost savings.
Presently, the company holds $14.5 billion of long-term debt against $2.3 billion in cash and cash equivalents. This is why the focus of the new leadership will have to be on increasing cash flows and making the company even leaner.
It is likely that New Paramount would also have to divorce itself from so-called “wokeism” in order to expand mass appeal, or at least not impose such artificial content restrictions. If the FCC approves Ellison’s takeover, investors could then look forward to a more valuable New Paramount.
For comparison, Ellison’s Oracle (NASDAQ: ORCL) has gained 36% value year-to-date. In the same period, PARAA (class A) is up 13.7% at $21.89 per share, while PARA (class B) is down 28.6% at $10.27 per share, as investors wait for FCC’s deliberation. Considering Ellison’s political leanings, it is not difficult to see further boost if former President Trump wins his 2nd term.
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Neither the author, Tim Fries, nor this website, The Tokenist, provide financial advice. Please consult our website policy prior to making financial decisions.