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    Media M&A Returns to Investor Spotlight – The Music news


    What a difference a few days can make. Hollywood studios’ push to turn their streaming business profitable, the acceleration of cord-cutting, the writers’ and actors’ strikes, as well as a weak advertising market, have been at the forefront of investors’ minds all year. But just before the end of 2023, industry deal chatter has moved back into the spotlight with a vengeance, led by reports that Paramount Global parent National Amusements (NAI) could come into play.

    The chatter, sparked by a Puck item, centers on whether Top Gun mogul David Ellison’s Skydance Media and private equity firm RedBird Capital are eyeing a run at Shari Redstone’s NAI and its controlling stake in Paramount Global, led by CEO Bob Bakish. A sale of Paramount, home to Paramount Studios, CBS, Showtime, MTV, Comedy Central, BET and Nickelodeon, could reshape the Hollywood landscape as any ownership change may mean assets are reevaluated and further deals could be made.

    Skydance, run by the son of billionaire Oracle co-founder Larry Ellison, has backed Paramount’s key Tom Cruise franchise Mission: Impossible as well as films like World War ZStar Trek Into Darkness and G.I. Joe: Retaliation and series like Jack Ryan and Reacher. Last October, Skydance revealed $400 million in funding led by investment firm KKR and existing backers, including the Ellison family, RedBird Capital and China-based entertainment conglomerate Tencent.

    Wells Fargo analyst Steven Cahall argued in a Dec. 8 report that a possible deal for Paramount quickly changed the debates among industry folks and investors. He wrote that he was “pretty sure media M&A is now the number 1 investor theme,” adding: “Since we took off a couple of hours ago we think media M&A has moved from the number 4-5 investor theme to number 1.”

    Sanford C. Bernstein analyst Laurent Yoon shared a similar thought in a Dec. 10 report. “Private equity firms, investment bankers and corporate development teams across the country are scrambling this weekend, and we always appreciate these reports breaking on Fridays,” he wrote with a healthy dose of irony.

    Yoon added, “Investors have shared the view that potential buyers may be interested in PARA’s studio assets but carving them out for sale would make the remaining assets (Linear and DTC) even less appealing. Management has tough decisions to make.”

    For much of the year, deal chatter had been more focused on longer-term opportunities down the line as Hollywood conglomerates right the ship on streaming with an eye to turning a profit. “Deal activity in the media and telecommunications sector continued to slow in the first half of 2023 following record highs in deal volume and value just two years ago,” accounting firm PricewaterhouseCoopers said in its mid-year media M&A trend report in July, which noted that “capital constraints, high interest rates, and regulatory scrutiny all likely played a role in a 20 percent year-over-year decrease.”

    PwC also predicted that in the second half of 2023, “dealmakers will continue to face economic hurdles and we expect deal volume in the sector to remain lower than the record highs during the pandemic.” But it added: “As media and telecommunications remains central to many sectors’ growth strategies, we remain optimistic that strategic deal opportunities will continue to arise within the sector throughout the remainder of 2023.”

    The Paramount chatter and resulting renewed interest in deal talk could well have a domino effect and contribute to getting the media merger merry-go-round moving again in the new year. After all, other sector players won’t want to be left behind if Paramount does indeed get snapped up.

    “Our follow-on questions are whether vulture-style private equity will come out to start buying up linear assets at firesale valuations and whether a new Paramount owner foments additional sector deals like Lionsgate Studios or Comcast for Warner Bros. Discovery,” Cahall wondered, for example, before summarizing the industry mood this way: “Game on.”

    Wall Street expects that a possible deal for Paramount via NAI would lead to asset sales. After all, analysts and bankers see Skydance and Paramount combining their film operations and CBS Studios to create a content producer with more scale — Paramount’s 63 million global streaming subscribers pale in comparison to Netflix’s 247 million subscribers or Disney+’s 105 million core subs — while selling off or closing other assets.

    Cahall, for example, predicts the possible shuttering of streamer Paramount+ and divestiture of streamer PlutoTV (which has an enterprise value of $1.7 billion, according to the analyst) and ”most of” Paramount’s linear TV channels (for which he mentioned an enterprise value of $16 billion). “If successful, we think Skydance/Redburn could be more willing to do what NAI wouldn’t: keep what it wants and break up the rest,” he argued, suggesting “perhaps $15 billion in divestitures.” Two days later, he updated the figure, writing: “We estimate $13.5 billion divestiture enterprise value, or around $10 billion after tax leakage.”

    Cahall sees a good chance of the Paramount deal coming together, writing: “We think founder David Ellison has the gravitas to court NAI alongside the deal-making expertise of Redbird. We’ve also historically been impressed by Skydance’s operational leadership, including president and COO Jesse Sisgold and CFO Larry Wasserman.” In the headline of one of his reports, Cahall even used a pun referencing one of Paramount’s big movie franchises to summarize the likelihood of a deal, calling a sale “Mission Possible.”

    Plus, the merged firm’s outlook would be improved, he argued, concluding: “Post very significant asset sales, Paramount New Company could be an attractive growth/content company.”



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