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Was Paramount Studios Just Lowballed by an $11 Billion Offer?

Paramount has a new offer on the table, but Shari Redstone might not even get out of bed for this one. The Wall Street Journal reported Wednesday that private equity firm Apollo Global Management (also an investor in “Dune” studio Legendary Entertainment) offered Paramount Global $11 billion for its film and TV studio.

The specifics of exactly which assets Apollo wants to buy (and not buy) are unclear, but the film and TV studios would include Paramount Pictures and the production capabilities at networks like CBS and MTV. Linear networks would stay behind, as well as distribution platforms like Paramount+ and BET+.

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Also unknown is if the iconic Paramount lot is part of the offer, which houses so much of Paramount’s studio production. When reached by IndieWire, a Paramount Global rep had no comment. Reps for Apollo did not return a request for comment.

Redstone is “unconvinced” by the offer, the Financial Times reported Thursday. According to the publication, she is going forward on negotiations with David Ellison and Skydance in which Ellison would acquire a majority stake in Paramount holding company National Amusements that controls more than three-quarters of Paramount’s voting power and would run a combined Paramount and Skydance. Together, the companies produced movies like “Top Gun: Maverick” and the “Mission: Impossible” franchise.

Financial Times reported the two sides want to close a deal in the coming months, but talks could still fall apart. A spokesperson for Redstone and her National Amusements, Inc. had no comment.

As WSJ notes, $11 billion for the film and TV studios is more than Paramount Global’s entire market cap, which at the time of the report was $7.7 billion. It jumped another billion dollars over the next hour or two, though it declined a bit Thursday morning.

However, market cap is only the combined value of all outstanding shares of common stock. Full valuation includes cash on hand and outstanding debt. Combine the three and on a good day (like today) Paramount’s enterprise value is about $25 billion.

HOLLYWOOD, CA - JULY 14: General view of the Paramount Pictures film studio lot amid the historic joint WGA & SAG-AFTRA writers and actors strike on July 14, 2023 in Hollywood, California. (Photo by AaronP/Bauer-Griffin/GC Images)
Paramount Pictures’ film studio lotGC Images

On Thursday, analyst Barton Crockett at Rosenblatt Securities noted that “We believe that the best value for most (potentially all) entertainment conglomerates is to break up, sooner over later.” He also had a message for Redstone: “If she were to scuttle a deal, Paramount shares could be pressured.”

But is Apollo’s offer even a good one? Crockett also noted that with Paramount’s debt and pension obligations exceeding $13 billion, the $11 billion offer the studio “is mainly an offset for liabilities.” With an asset worth (exactly) what someone will pay for it, Crockett’s new tables treat Apollo’s $11 billion offer price as the Paramount studio’s enterprise value.

In December, analyst Steve Cahall of Wells Fargo pegged Paramount’s studios at a value of $19 billion, when Paramount’s long-struggling stock was a bit higher. Cahall could not immediately be reached for comment on the reported Apollo offer.

Analysts at MoffettNathanson on Thursday said that if Paramount will entertain standalone studio offers, other bidders with other billions may follow. Paramount could leverage the Apollo bid into a bigger asking price for the company as a whole — or, it could simply sell the studio and pay down its debt.

But that’s risky. Without the studio, “the rest of the company may appear hollow,” analyst Robert Fishman wrote. He added that the bid for Paramount’s studio is a “credible” one that may “swing that pendulum back in favor of a deal.” (By “credible,” he told us it means the funding is there.)

Paramount Pictures is the crown jewel of Redstone’s Paramount Global empire, but she, like her dad Sumner Redstone, has been reluctant to break it up. Paramount sold certain assets to make the whole company more attractive to buyers, including last year’s $1.6 billion sale of its publishing arm Simon & Schuster and more recently selling the Indian media company Viacom18. With the same mission in mind, it also decimated the ranks with mass layoffs.

Another way in is to buy Redstone’s National Amusements, which is far smaller than Paramount. According to a report in Deadline last month, Apollo itself mulled an offer for NAI but has since lost interest.

Shari Redstone and Tom Cruise at the premiere of 'Mission: Impossible - Dead Reckoning Part One' held at Rose Theater, at Jazz at Lincoln Center's Frederick P. Rose Hall on July 10, 2023 in New York, New York. (Photo by Lexie Moreland/Variety via Getty Images)
Shari Redstone and Tom Cruise at the premiere of ‘Mission: Impossible – Dead Reckoning Part One’Variety via Getty Images

Redstone is more willing to sell the company as a whole, and Byron Allen offered $30 billion for the whole of Paramount, but analysts are skeptical of whether he has the financial backing. How skeptical? The WSJ story did not include him in its list of potential suitors.

IndieWire reached out to Allen’s reps asking if there is any update on his offer. We did not receive a response.

Steve Birenberg, principal with investment advisor Northlake Capital Management, said a lowball offer from Apollo could just be a way to start a negotiation.

“They may just want to be high enough to get Shari Redstone to the table. Or to kick off other bids for the whole company or NAI,” Birenberg told IndieWire.

Birenberg believes if Apollo were to buy Paramount Pictures, they’d make it into an “arms dealer,” much in the way Sony has a Netflix output deal for all theatrical movies in exchange for a juicy licensing fee. That would mean death for Paramount+.

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