Paramount, Skydance merger deal ends Redstone era

Skydance Media and Paramount Global agreed to merge, the companies announced late on Sunday, scripting a new chapter for one of Hollywood's oldest studios.

The companies agreed to a two-step process in which Skydance and its deal partners will acquire National Amusements, which holds the Redstone family's controlling stake in Paramount, for $2.4 billion in cash.

Skydance will subsequently merge with Paramount, offering $4.5 billion in cash or stock to shareholders and providing an additional $1.5 billion for Paramount's balance sheet.

The deal represents the end of an era for Shari Redstone, whose father and late patriarch, Sumner Redstone, transformed the family's chain of drive-in movie theaters into a media empire that included Paramount Pictures, the CBS broadcast network and cable television networks Comedy Central, Nickelodeon and MTV.

"Given the changes in the industry, we want to fortify Paramount for the future, while ensuring that content remains king," Redstone, chair of Paramount and National Amusements, said in a statement, citing a phrase her father coined.

The merger would combine Paramount, home of such classic films as "Chinatown", "The Godfather" and "Breakfast at Tiffany's", with its financial partner on several major recent films, including "Top Gun: Maverick", "Mission: Impossible-Dead Reckoning" and "Star Trek Into Darkness".

David Ellison, the 41-year-old tech scion who founded Skydance, will become chairman and chief executive of the new Paramount. Jeff Shell, former chief executive of NBCUniversal, will be its new president.

PARAMOUNT'S PAIN

Ellison, son of Oracle co-founder Larry Ellison, stands to inherit a media company that has a mountain of challenges, as it navigates an entertainment business upended by the streaming video revolution.

Paramount has shed nearly $17 billion in value since late 2019, as its traditional television business has eroded faster than its Paramount+ streaming service could turn a profit.

There has been tension in the executive suites. Its chief executive, Bob Bakish, was ousted in April after clashing with Redstone over the Skydance deal. He was replaced by a trio of executives who occupy the "office of the C.E.O.," a group that has proposed making $500 million in cuts, selling off certain assets, and exploring a possible joint venture partner for Paramount+.

Ellison pledged to bring "best-in-class" technology and modern infrastructure to Paramount+ and the free streaming service, Pluto TV, even as it enhanced Paramount's traditional television networks.

"We are committed to energizing the business and bolstering Paramount with contemporary technology, new leadership and a creative discipline that aims to enrich generations to come," Skydance said in a prepared statement announcing the deal.

The Paramount-Skydance deal came together after months of talks that appeared to have derailed when Redstone abruptly called off negotiations on June 11.

At that time, Skydance and its partners had reached an agreement to acquire National Amusements, which owns 77% of the voting shares of Paramount. However, talks reached an impasse over other issues, including National Amusements' request that the deal be approved by a majority of non-Redstone shareholders, a condition Skydance considered a non-starter.

Other prospective bidders for National Amusements emerged: independent Hollywood producer Steven Paul, Seagram heir Edgar Bronfman, who is backed by private equity firm Bain Capital, and IAC Chair Barry Diller. Even earlier, Sony Pictures and buyout firm Apollo Global Management had expressed interest, though a deal never materialized.

Meanwhile, discussions between Ellison and Redstone quietly resumed, and became more constructive, according to two people familiar with those discussions.

NEW DEAL

Skydance sweetened the Redstone family's payout for the sale of National Amusements to $1.75 billion, said one of the sources familiar with deal terms. It also enhanced legal protections from possible shareholder lawsuits, clearing the way for a new agreement, the source said.

Under the terms of the agreement, Ellison's Skydance will merge with Paramount in an all-stock transaction that values Skydance at $4.75 billion, creating a company with an enterprise value of $28 billion.

Ellison and his financial backers, the Ellison Family and Redbird Capital Partners, will pay $15 a share in cash or stock to Paramount's non-voting Class B shareholders, representing a 48% premium as of July 1.

Holders of the Class A voting stock would receive $23 a share in cash or stock, or a 28% premium as of July 1.

Once the transaction closes, Skydance's investor group will own 100% of the new Paramount's Class A voting shares and 69% of its outstanding B shares.

The deal also gives Paramount 45 days to find a better offer, leaving open the possibility of yet another plot twist in an already chaotic deal process.