Why is Shari Redstone, ruler of a vast media kingdom, considering selling?

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Paramount Pictures, the historic studio behind hits like “The Godfather” and “Raiders of the Lost Ark,” has had several owners over the last century: its co-founder, Adolph Zukor. The Gulf+Western industrial conglomerate. At one time, it was an independent public company.

But for nearly three decades, Paramount's fate has been controlled by the Redstone family, after its pugnacious patriarch, Sumner Redstone, won a bidding war for the studio in 1994.

That may be about to change. Shari Redstone, Redstone's daughter, is weighing a sale of her family's majority stake in Paramount's parent company just five years after she won a fight to retain control of her family's media empire.

Suitors are already lining up for both Redstone's stake and the company he controls, including Warner Bros. Discovery, owner of HBO and the Warner Bros. film studio, and Skydance, the film studio that helps produce hit Paramount franchises. like “Top Gun” and “Mission: Impossible.”

So far, Paramount's search has the makings of a drama worthy of the big screen. Here's the story so far:

Redstone, 69, presides over a vast media empire that includes Paramount Pictures, MTV, Nickelodeon and CBS. But his rise to the top was not easy.

For years, Redstone worked hard at National Amusements, the theater chain that also serves as Paramount's holding company. A lawyer by training, she demonstrated an early aptitude for the media business, but was overshadowed by her elderly father, who refused to relinquish control of her even as her mental capacity declined.

As the family business began to falter, Redstone began to assert himself more. He thwarted an attempt by Philippe Dauman, one of his father's lieutenants, to sell a stake in Paramount Pictures in 2016. One of his allies, Bob Bakish, became his permanent replacement as CEO.

Two years later, he won another battle. Leslie Moonves, whose programming prowess earned him the nickname “the man with the golden belly,” led a revolt against Redstone, urging a Delaware court to strip his family of control of the company. Redstone prevailed after Moonves was accused of sexual harassment and forced to leave the company. (Mr. Moonves has denied allegations of non-consensual sex.)

In 2019, months after Moonves was ousted, the boards of CBS and Viacom (companies controlled by National Amusements) began exploring a merger. The deal, which Redstone championed, placed the Paramount movie studio and Viacom's suite of cable channels, including MTV and Nickelodeon, under the same corporate umbrella as CBS and book publisher Simon & Schuster.

After the merger, Redstone encouraged the combined company, eventually rebranded as Paramount, to use its weight to make an ambitious foray into the streaming wars, stocking its Paramount+ service with shows and movies from both Viacom and CBS. The company have big bet on building a healthy, profitable streaming business before its traditional television networks, which are lucrative but in terminal decline, fade away.

Paramount was once so powerful that people in Hollywood referred to it by the nickname “the Mountain,” in reference to its logo of a snowy peak surrounded by stars.

But today, the company is more of a melting iceberg.

Paramount's cable network portfolio has been hit by the same advertiser weakness and cord-cutting that has plagued its industry peers, and it faces subscriber losses estimated by analysts of nearly 25 percent over the next two years. Wall Street is not convinced that Paramount's loss-making streaming business will ever be able to compete with companies like Netflix. Paramount+ has a 6 percent share of the revenue market, while Netflix has 47 percent and Disney's streaming services have a combined 23 percent.

The Paramount movie studio has done its best to revive old franchises like “Teenage Mutant Ninja Turtles” and keep “Mission: Impossible” running, but it ranks last among Hollywood's five legacy movie companies in domestic market share and posted a operating loss of $143 million for the first nine months of this year.

Despite those headwinds, Paramount has made some progress. The streaming service has 63 million subscribers worldwide, and the company's Pluto TV free streaming service generates more than $1 billion in annual revenue, up from $70 million when it was acquired in 2019.

There are also financial pressures on National Amusements. Historically, most of the holding company's profits come from dividends on the Paramount shares it owns, about 10 percent of that company. But financial pressures forced Paramount to slash its dividend, cutting into National Amusements' profits.

Now, National Amusements is unable to generate cash, according to a May estimate from S&P Global Market Intelligence, and owes about $25 million in annual cash interest payments.

Why is Mrs Redstone willing to sell her majority stake in the company? It may be due to the pressures that both National Amusements and Paramount face. As Rich Greenfield, an analyst at LightShed Partners, said in a recent note to a client: “Paramount has a bleak future ahead.”

National Amusements' 10 percent stake in Paramount – a stake worth more than $1 billion at current prices – remains a prize for any deep-pocketed investor looking to control some of America's most prestigious media assets. . Redstone could sell National Amusements' stake in Paramount or push for a deal to sell the entire company. Or you could choose not to sell, essentially betting that the company's prospects will improve over time.

BDT & MSD Partners, a merchant bank founded by Byron Trott, a former Goldman Sachs partner who advises some of America's richest and best-connected family business owners, is advising Redstone on its options. So far, National Amusements has held talks with media companies such as Skydance, Warner Bros. Discovery and Netflix and technology companies such as Amazon and Apple, according to four people with knowledge of the discussions.

Warner Bros. Discovery has also directly raised the issue of a merger with Paramount. David Zaslav, CEO of Warner Bros. Discovery, addressed the issue during Tuesday's lunch with Bakish. Those discussions, which are in their early stages, are separate from Ms. Redstone's discussions about selling her stake in National Amusements.

Paramount's suitors and Ms. Redstone will have to solve a complicated equation to reach an agreement.

Any buyer of Redstone's stake in National Amusements will likely have to pay a bonus over the market value of its shares – commonly known as a “control premium” – for Paramount's management rights. For the owners of a private company like Skydance, that requires raising capital. For a publicly traded company like Warner Bros. Discovery, that means convincing shareholders that the price increase is worth the additional investment.

Some of the suitors are also subject to the same financial pressures that Paramount faces. Although it has paid down some of its debt, Warner Bros. Discovery has more than $40 billion in leverage, according to the report. price of your merger with AT&T's WarnerMedia division. Warner Bros. Discovery also risks a tax penalty if it reaches a deal before the second anniversary of that merger in April, which could complicate negotiations.

There are also non-financial considerations. To make drastic changes, any buyer of National Amusements would have to work through Paramount's board of directors.

If Skydance's bid to acquire National Amusements is successful, for example, the company will likely need to nominate its own slate of directors at Paramount, which could then contemplate moves such as merging Skydance with Paramount Pictures, according to two people familiar with the negotiations.

Brooks Barnes contributed reports.



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