What Went Wrong: Inside Paramount’s Failed Merger Talks and the Battle to Salvage the Company

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For Shari Redstone, it was nothing personal. But the longer the negotiations went on, the more Redstone fell out of love with the idea of marrying her family’s legacy to David Ellison’s Skydance Media.

So on June 11, as board members of Paramount Global were about to hold a key meeting on the long-gestating deal to merge with Skydance, Redstone was out — even as those around her were still scrambling to get it done.

Earlier that morning, lawyers and bankers for both sides were up at dawn to finish last-minute paperwork in advance of the meeting, scheduled for 11:30 a.m. Pacific Time via videoconference. Skydance leaders believed it would be the last hurdle to clinching an agreement. The economic terms of the deal had been hammered out and revised multiple times by the Paramount board’s special committee overseeing sale talks. After months of highly public negotiations and the turmoil of Paramount ousting CEO Bob Bakish in April, Ellison’s team thought an agreement to take control of the company that owns Paramount Pictures, CBS, Showtime, Nickelodeon, BET and Paramount+ was in hand.

But two minutes before the June 11 meeting’s scheduled start time, the Skydance CEO and others received a bombshell via email. Lawyers from Ropes & Gray, representing National Amusements Inc., Redstone’s holding company and Paramount’s parent firm, sent an email to lawyers from Cravath Swaine & Moore, representing the board’s special committee, that they were ending negotiations. Team Shari explained that they didn’t think they could clear up the remaining issues and complete a transaction. Team Skydance, by multiple accounts, was floored, and expletives flew as they processed the news.

The biggest of those remaining issues, in NAI’s view, was NAI’s push to hold a vote among all Paramount Global shareholders on the deal in order to help shield NAI from shareholder lawsuits claiming the terms were skewed to favor the controlling shareholder. From Skydance’s perspective, Redstone’s undisputed control of the voting power in Paramount Global was one of the assets they were to acquiring in the complicated transaction among Paramount, NAI and Ellison’s much smaller Skydance film and TV production operation, with backing from Gerry Cardinale’s RedBird Capital. A representative for Skydance to declined comment on the issue of the shareholder vote.

Redstone’s ability to make such a unilateral decision to call off the talks is a testament to her unusual power, even with her empire’s diminished state. The only woman to ever control one of Hollywood’s largest media conglomerates came to the conclusion that Skydance wasn’t the right move at the right time — despite the Greek chorus of Wall Streeters and business leaders who have opined for months that market conditions had left her two choices: sell or watch the company wither.

The collapse of the Skydance-Paramount deal sent Hollywood tongues wagging about the company’s future. As details emerged, it became evident that Paramount Global board member Charles Phillips, who headed the board’s special committee evaluating sale options and was an influential voice in the negotiating process, became wary of the deal.

And a source close to the situation said Redstone was disconcerted by a June 3 CNBC report that suggested a final Paramount-Skydance agreement was imminent. For one, it felt premature to her. And for another, “Hearing it [said] like that made her really consider what they were about to agree to,” a source close to Redstone says.

But the overriding reason Redstone pulled the plug came down to cold, hard strategy. Paramount Global is under extreme pressure to do something, as its profits have shrunk and its mountain of debt tops $14 billion. Long term, the company needs to chart a fresh course to survive in a new era for entertainment.

In the short term, however, Redstone didn’t feel that Skydance was bringing enough to the table to make it worth her while to make a deal that would likely be challenged in court by other Paramount shareholders. Those shareholders had been quick to complain — and threaten litigation — as details of the proposed Skydance transaction leaked out. The deal was structured to pay Redstone significantly more for her preferred shares than it would common stockholders. The original $6 billion Skydance acquisition plan would have yielded a $2.5 billion premium for Redstone’s shares. Over the course of the talks, Redstone’s premium was shaved to about $2.1 billion, in order to increase the buyout price for the other shareholders. Ellison’s camp is convinced it was the less advantageous financial terms that drove Redstone to pull out of the deal.

For Redstone, the silver lining to the drawn-out negotiations with Skydance was that another option emerged during those months. After Bakish was forced out due to the board’s lack of confidence in his vision for the future, Paramount set up a three-person Office of the CEO comprising the company’s top operational leaders: George Cheeks of CBS, Chris McCarthy of the cable networks group and MTV Entertainment Studios and Brian Robbins of Paramount Pictures and Nickelodeon. Last month, that trio outlined a strategic plan for the company that impressed Redstone and other board members. It’s an austerity program that calls for big cuts in corporate spending, staff layoffs and asset sales. It also banks on Paramount finding an investor or joint venture partner for the Paramount+ streamer, which has racked up more than $3 billion in losses in two years.

Skydance’s post-merger plan included many of the same provisions as those recommended by the trio. In recent weeks, Redstone and other board members concluded that Paramount didn’t need Skydance’s help to fix its problems. The CEO triumvirate likely sealed the deal with their presentation at Paramount Global’s annual shareholders meeting, held virtually on June 4.

On top of that development, sources say the breakup with Skydance came amid friction between the Skydance team and Phillips. Suspicions were raised that the tension was related to Phillips’ tenure as president of Oracle, the software giant led by David Ellison’s father, Larry Ellison, from 2003 to 2010. (A spokesman for Phillips declined to comment.)

At the June 4 virtual shareholders meeting, Cheeks, Robbins and McCarthy ran through PowerPoint slides laying out initiatives to reduce costs as well as boost revenue and improve profitability. The new strategy includes job cuts and will result in a “leaner and more nimble” company, according to Cheeks. Paramount’s execs have already identified $500 million in annual cost savings, he said, adding that layoffs will target “duplicative teams and functions across the organization, real estate, marketing and other corporate overhead categories.”

Paramount Global’s earnings slump has taken a direct toll on Redstone’s personal wealth. With cash-flow pressure, the company had no choice but to slash its quarterly dividend payments, starting in May 2023, from 24 cents per share to 5 cents. As the owner of about 10% of Paramount Global’s shares, Redstone’s National Amusements Inc. relies on the dividend for much of its own cash flow. The hit to NAI was so hard that Redstone had to hastily arrange a debt-restructuring plan for the holding company at high interest rates in September 2023. Meanwhile, Paramount Global’s credit rating was cut to junk status in March by the S&P Global Ratings credit-ratings service — a black eye for a company that had long been a pillar of its business sector.

Sources close to the situation say that the strain for NAI over the dividend cut also frayed relations between Bakish and Redstone, as it fell to the then-CEO to deliver the news that the company could not service its debt without conserving cash that would otherwise go to dividend payments.

The dividend dilemma underscored that Redstone was in the bad position of trying to sell at the bottom of the market — a time when even more-successful media firms like Disney and Comcast are struggling to get Wall Street excited about their prospects. It’s an extremely depressed moment for media company valuations in general and Paramount in particular.

“She really cares about the company and the people here. It’s a long legacy,” says a senior Paramount source, adding, “She wants to do right by the company and secure the future for her family.”

How did Paramount Global, endowed with one of Hollywood’s founding studios, a leading broadcast network and a suite of cable networks that were an essential component of the pay-TV lineup, find itself on the precipice of selling for a fraction of its once-lofty valuations? The Skydance M&A drama is only the latest chapter in the life of a studio that survived two World Wars, the Great Depression and plenty of other macroeconomic shocks since it was founded in 1912.

The Redstone clan came into the picture in mid-1994 when Shari Redstone’s father, the late mogul Sumner Redstone, acquired Paramount Pictures. The elder Redstone’s Viacom merged with the studio after a monthslong battle for control of Paramount with rival suitor Barry Diller.

Paramount’s Tumultuous Timeline: Tracking 35 Years of Corporate Intrigue and Drama

Five years later, Sumner Redstone pounced on CBS, merging the network with Viacom. At that time, the combined Viacom-CBS business carried an enterprise value of $80 billion. In 2006, Viacom and CBS were split up again into separate companies in support of Sumner Redstone’s desire to boost the share prices for both. In 2019, when Shari Redstone prevailed in a long campaign to reunite Viacom and CBS, the re-merged company was valued at $30 billion. As of June 17, the market capitalization of Paramount Global had dropped below $7 billion.

In plain terms, Paramount, under Bakish, who ran the company from late 2016 to this April, made the ill-fated decision to go for broke on streaming — right at the moment when traditional TV advertising and cable TV affiliate revenue took a turn for the worse. The erosion of those two key profit centers for Paramount (and other media giants) was sharper and swifter than most analysts predicted. Paramount+’s expansion was financed in large part with debt — which also became more expensive to manage over the past two years as interest rates climbed. All of these headwinds have left Paramount in a vulnerable state.

Paramount+ has been the company’s financial Achilles’ heel. The streamer has chewed through money and other resources since it was relaunched and expanded at the height of the streaming wars in March 2021. As Paramount, Warner Bros. Discovery, Disney and others have learned, it costs a fortune to feed a hungry streaming service. Not only does it require billions of dollars to invest in original productions, but it takes millions to market those titles, and still more millions for the technology and computing bandwidth to power those platforms.

Paramount Global is sticking to previously stated investor guidance that Paramount+ will turn a profit in 2025. Indeed, the streamer has delivered steady subscriber growth, outpacing the increase of subscriptions for Warner Bros. Discovery’s Max. But that growth was fueled by heavy spending on original series content. Under Bakish, Paramount Global was counting on a lot of things to go right in order for the gamble on Paramount+ to pay off.

“Paramount has been running against the clock with their debt load,” says Howard Gutman, senior manager of private equity services at MorganFranklin Consulting. Gutman adds that if Paramount were not controlled by a single shareholder, it likely would have moved forward with various deals to sell additional assets or bring in outside investors to relieve the pressure.

Call it revisionist thinking, but Bakish’s strategy of spending big to build up Paramount+ subscribers was influenced by the mania that developed around streaming as Netflix came on strong. Certainly, Wall Street encouraged Big Media companies to go for broke in amassing subscribers — until the “Netflix correction” in April 2022, when the streamer reported a big subscriber loss. Overnight, the market’s irrational exuberance ended as forecasts of the potential size of streaming’s paid-customer base in the U.S. and abroad came down to earth.

Bakish also led the charge to buy international TV network and production assets such as Argentina’s Telefe and Chile’s Chilevisión. In hindsight, many at Paramount say, that capital would have been better spent on the company’s core business of TV and film production.

As of the end of March, Paramount was carrying $14.6 billion in long-term debt. That’s down from nearly $20 billion four years ago. But earlier this spring, concerns over Paramount Global’s free operating cash flow-to-debt ratio — an indicator of its ability to service existing debt payments — prompted S&P Global to cut the rating on the company’s debt to junk status.

Redstone, too, might have taken a cue from another powerful media family: the Murdochs. They sold 21st Century Fox’s entertainment assets to Disney in a $71 billion deal that closed in 2019. With their remaining assets, the Murdochs formed Fox Corp., which houses Fox TV stations, Fox Sports and Fox News along with the free, ad-supported Tubi streamer.

“Hindsight is 20/20,” says Gutman. But for Paramount Global, “the family-owned nature of the business probably delayed some tough decisions.”

Reached by Variety, Bakish declined to comment.

With negotiations ongoing for the past six months, a level of fatigue and resignation has set in across the company. Insiders say they have been bracing for job cuts — no matter what sale scenario might have unfolded. They describe general unhappiness with Paramount’s leadership vacuum, sharing tales about missed opportunities and corporate infighting.

“Change is coming, and everyone knows it,” a Paramount employee says.

That’s true, even if the change is taking a different form from what most Paramount employees expected a few weeks ago. The ouster of Bakish and the introduction of the Office of the CEO management structure was met with confusion. The perception was that Cheeks, McCarthy and Robbins were the Band-Aid solution for keeping the ship steady until the Skydance deal closed.

The tri-part CEO structure is highly unorthodox. It would seem to set the stage for a battle of fiefdoms. But since the breakup with Skydance, Paramount Global has sought to reinforce the trio’s authority. Some senior executives expressed relief, perceiving the CEO trio as “the devil you know,” in the words of a 20-plus-year Paramount veteran. Others were more effusive, seeing the eleventh-hour shift by Redstone as a sign that she and others still have faith in the company’s future as a stand-alone entity.

Redstone “will give these guys a chance to right the ship,” says another longtime Paramount television executive. Internally, Cheeks, McCarthy and Robbins are generally well regarded by their teams — but skepticism abounds about whether they can make it work as a three-headed CEO.

Cheeks gave a glimpse into how they are making it work during his keynote address at Variety’s TV FYC Fest in Los Angeles on June 6. For one thing, each executive retains greenlight authority for movies and TV shows in their respective divisions.

“We are maintaining that divisional clarity,” Cheeks said. “These are the three main content divisions. Being a content company, we want to make sure that our teams feel stable and secure and continue to do the great work they’ve been doing.”

Sources emphasize that the CEO trio had proactively been working collaboratively on big-picture issues for more than two years. As leaders of Paramount Global’s key content-generating divisions, they realized the need to coordinate strategies to support one another’s priorities, whether it be a “Teenage Mutant Ninja Turtles” film from Paramount Pictures or the launch of an “NCIS” series for CBS or a “Yellowstone” show for McCarthy’s Paramount Media Networks.

“At the end of the day, what we are is a hit-making content machine on the film side and on the television side, across multiple genres, from kids to unscripted to scripted — everything,” Cheeks said on June 6. “I really, really do believe that we are very well positioned to meet the moment.”

Many longtime Paramount Global watchers trace the roots the company’s current predicament to Philippe Dauman, Bakish’s predecessor, who was CEO of Viacom from 2006 to 2016. Under Dauman, the company was laser focused on its earnings performance and spending billions to buy back company shares in order to keep Viacom’s stock price high and the executive bonuses flowing. The practice has become more controversial in recent years, as senior management compensation is often tied to stock price growth. The Dauman regime “bought back so many shares that it’s literally like taking a bunch of cash and incinerating it,” says a seasoned media executive and Viacom alum. “With that cash, you could have bought Lionsgate. You could have bought Marvel. And while Disney was buying Marvel, Viacom was sitting there just buying back stock and not investing in growth.”

Paramount Global, too, has turned down opportunities to sell once-valuable properties. In 2021, Mark Greenberg, a former Showtime and Epix exec, offered Bakish up to $6 billion for Showtime Networks in a bid with Blackstone, The Wall Street Journal reported. In early 2023, former Showtime CEO David Nevins extended a bid of more than $3 billion for the Showtime network and streaming business. Bakish turned down both deals.

Last December, media mogul Byron Allen, founder and CEO of Allen Media Group, reached out to Paramount Global’s senior executives and board, offering $3.5 billion for BET Media Group, which includes the BET cable channel, VH1, BET Studios and streaming service BET+. That was up from the $2.7 billion that Allen offered earlier in 2023. In January, Allen doubled down, floating a trial balloon of a $30 billion offer for the entirety of Paramount Global, including the debt. Paramount passed on Allen’s proposals.

Under Bakish, the company did shed some assets to shore up the balance sheet. In 2021, it sold the skyscraper known as BlackRock, CBS’ New York headquarters, for $760 million, as well as the CBS Studio Center lot (aka CBS Radford) for $1.85 billion. And last October, Paramount Global closed its $1.62 billion sale of Simon & Schuster to private equity firm KKR.

Showtime was poised to mark its golden anniversary next year. Now the pay TV brand has been folded into Paramount+ as a premium tier – dubbed Paramount + with Showtime — that requires an additional fee from subscribers.

Showtime content is now available via the Paramount+ streamer, and conversely, some Paramount+ shows are carried on the linear Showtime cable channel. This plan was orchestrated by McCarthy as a way of getting more bang for the bucks spent on original series for Showtime and Paramount+. Insiders maintain that the benefit of bolstering Paramount+ with the Showtime library and the long-term cost benefits of airing the same shows on two different platforms far outweighs the cash they were offered for the Showtime linear channel.

And BET Media Group is virtually assured to be on the sales block soon under the new regime’s plan. So are the Latin American channels Telefe and Chilevisión. The goal, sources close to the situation say, is for Paramount Global to make sure it is devoting as much money and resources as possible to creating hit TV shows and movies. Everything else — such as investing in the technology required to run a global streaming service or to operate a TV network on another continent — is subject to review.

“We should have pivoted our strategy from growth, growth, growth at all costs two years ago,” says a senior Paramount Global source. “This is that pivot.”

The whirlwind of negativity about the company’s current state has taken its toll. Many employees have been looking for new jobs for months. With Redstone tapping the brakes — for now — on a sale process, what’s next for the storied studio?

Redstone may pursue a sale of her National Amusements Inc. holding company alone, instead of trying to construct a deal that also encompasses all of Paramount Global. Amid the chaotic Skydance talks, others have emerged to scope out an acquisition of NAI. Those include ex-Warner Music and Seagram boss Edgar Bronfman Jr. and Bain Capital as well as producer and filmmaker Steven Paul.

For now, Redstone has been publicly conveying her full confidence in the new regime. “NAI supports the recently announced strategic plan being executed by Paramount’s Office of the CEO as well as their ongoing work and that of the company’s board of directors to continue to explore opportunities to drive value creation for all Paramount shareholders,” the company said in a statement confirming it had broken off talks with Skydance.

The co-CEOs said in a June 12 companywide memo that they are continuing to focus on executing their strategic plan, while also noting that the board will “always remain open to exploring strategic alternatives.”

On the streaming front, McCarthy said Paramount Global is “exploring options” to form a joint venture or a long-term partnership — not just a deal to cobble together marketing bundles — with another streamer or tech platform to give Paramount+ more heft and more content without draining Paramount’s coffers. To date, Paramount has discussed merging Paramount+ with NBCUniversal’s Peacock in some way; the companies are already joint-venture partners in the European streaming service SkyShowtime.

At the June 4 shareholders meeting, Redstone said, “While we recognize this is not a traditional management structure, we are confident it will enable them to take quick action to implement best practices across the business and drive better performance.” The overarching goal for Paramount, she claimed, is “driving value for all our shareholders.” Given all the scrutiny, Redstone’s newly configured leadership team is on the clock to prove that theirs is the right strategy to turn the company around.

As is usual for such presentations, Paramount kicked off the meeting with the obligatory programming sizzle reel. That included a clip of SpongeBob SquarePants exclaiming, “I am so excited, I think I’m gonna explode!” It was a jarring contrast to the current anxiety among Paramount’s rank and file, who are trying to maintain a business-as-usual façade amid the uncertainty of what will happen next.

Clayton Davis, Matt Donnelly, Jennifer Maas and Michael Schneider contributed to this report.