Stocks and Bonds of Paramount Fall After It Closes Its Deal With Skydance Media

Paramount Global's stock and bonds experienced significant selling pressure on Monday as the company moved closer to finalizing its acquisition by Skydance Media. This development follows a special committee vote by Paramount's board members in favor of the merger with Skydance, led by David Ellison, son of Oracle Corp. co-founder Larry Ellison.

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Skydance Media plans to acquire National Amusements, the holding company controlled by Shari Redstone, which oversees Paramount. Following this acquisition, Skydance and Paramount will merge. Shari Redstone, in a statement, reflected on her father's legacy, stating, “In 1987, my father, Sumner Redstone, acquired Viacom and began assembling and growing the businesses today known as Paramount Global. He had a vision that ‘content was king’ and was always committed to delivering great content for all audiences around the world. Given the changes in the industry, we want to fortify Paramount for the future while ensuring that content remains king.”

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Under the deal's terms, Paramount shareholders will receive either $15 per share in cash or one share of the new entity, which represents a 48% premium over the stock's price on July 1, before the deal discussions began. Despite this premium, Paramount’s stock (PARA) fell about 5% on Monday and is down 24% year-to-date, underperforming the S&P 500, which has gained about 17%.

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Paramount's bonds also reacted to the news. Spreads on some of the company’s longer-term bonds, like the 4.376% bonds maturing in March 2043, tightened by up to 15 basis points. The price of these bonds increased by about five points over the week. This pattern fits the "buy the rumor, sell the news" phenomenon, where traders bought bonds in anticipation of the merger and sold off once the news was confirmed.

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Rumors of a potential deal for Paramount have circulated for months. Skydance was reportedly close to sealing a deal in June, but negotiations fell through at the last minute, only to be revived weeks later. The media landscape has been challenging, with companies like Paramount cutting costs, laying off staff, and seeking mergers to achieve profitability in their streaming services. This is part of a broader effort to compete with Netflix, which many analysts consider the frontrunner in the streaming wars that began over a decade ago. Studios have also reduced TV production following last year's strikes.

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During the merger talks, other bidders for Paramount emerged, including Sony, private-equity firm Apollo Global Management, Barry Diller’s media company IAC Inc., former media executive Edgar Bronfman Jr. (backed by Bain Capital), and Hollywood producer Steven Paul. Despite these competing interests, Skydance emerged as the frontrunner in the deal.

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The merger with Skydance, an independent production company known for partnering with Paramount on successful films like “Top Gun: Maverick” and “Mission: Impossible — Dead Reckoning,” could provide strategic benefits. Skydance's integration with Paramount could strengthen the latter’s position in the competitive entertainment industry. By combining forces, the companies hope to leverage their collective strengths to produce high-quality content and navigate the evolving media landscape more effectively.

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Paramount Global's stock and bond sell-off reflect market uncertainties and the complexities of the media industry. While the merger with Skydance Media offers a path forward, the overall industry dynamics, including fierce competition and the need for profitability in streaming services, continue to pose challenges. As the merger progresses, investors will closely watch for further developments and their implications for Paramount's future.

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