Paramount falls after Skydance makes unusual merger offer

Investing.com -- Paramount Global suffered a turbulent week as it fielded offers from potential suitors that culminated in a tentative agreement to merge with Skydance in deal that as it complex as it is unusual, leaving some questioning whether the end justifies the means.  

Under the terms of deal, which still has a few kinks to work out, Skydance, David Ellison’s media company, plans to merge its assets and new equity with Paramount and own either a majority stake or a substantial minority stake in company, CNBC reported, citing sources. To get the merger over line, Paramount would need to raise as much as $3 billion in new equity, CNBC reported Thursday.  

The Skydance consortium including private equity partners RedBird Capital Partners and KKR would own a 45% or just over 50% stake in the combined entity, the sourced told CNBC.

The combined entity would be led by Skydance CEO David Ellison, whose father Larry Ellison, co-founder and chairman of Oracle (NYSE:ORCL) is expected to help finance the deal.

Skydance has a tentative deal in place to acquire Shari Redstone’s 77% voting stake of National Amusements, the family holding company that controls Paramount Global, the Wall Street Journal reported, citing sources. But merging with Paramount Studios would require permission from an independent committee of directors.  

"The board has a fiduciary responsibility to consider the value delivered to all shareholders, not just those with voting power. It is unclear what Ellison’s intentions are for the rest of the company," MoffettNathanson said in a note. 

The layer of complexity has many questioning why Apollo's more conventional $26 billion takeover bid for the Paramount was rejected. Paramount's management had questions about how Apollo planned to finance the deal, the WSJ reported, but MoffettNathanson suggests it may have been an "attempt to play down expectations about the relative value of their favored suitor."

For now, however, the tentative deal has bought Skydance some time, or 30 days, to work out the terms of the deal and make its case on how it plans to take this legacy media and entertainment into the future. 

Paramount Global Class B (NASDAQ:PARA) fell 3% on Friday, but is down 17% year to date.