NOTE 1: Ambler’s Cut will have to take a bi-weekly approach to posting articles for the next little while. Between work and the current script I am chipping away at (it is going really well by the way) --my time is strained!
On March 20th, 2024, private equity firm Apollo Global Management tendered an $11 billion offer exclusively for its film and TV studio assets.
Paramount Pictures CEO Shari Redstone probably didn’t even get out of bed for this offer. But, jokes aside, the absurdity behind this offer speaks volumes for reasons that many are overlooking.
The offer currently lacks full transparency. Apollo's interest lies in acquiring the film and TV studios, encompassing entities such as Paramount Pictures, along with production capabilities through CBS and MTV. Nevertheless, linear networks are excluded from Apollo's purview, as are financially strained distribution platforms like Paramount+ and BET+. It remains uncertain whether Apollo seeks control over the Paramount Lot, as such a prospect presents potential real estate challenges.
From Apollo's perspective, this offer presents an all-encompassing opportunity. By sidestepping the volatile landscape of streaming platforms, Apollo aims to fortify its grip on the creative control of a major Hollywood studio.
However, The Financial Times reported Paramount's CEO, Shari Redstone, viewed the offer as "an unconvincing effort." The publication suggests Redstone intends to forge ahead with negotiations involving David Ellison and his company, Skydance.
Should Redstone pursue this path, Ellison and Skydance could secure a majority stake in Paramount's parent company, National Amusements (N.A.), which holds over three-quarters of Paramount's voting power, thereby overseeing the combined Paramount and Skydance entities.
So, why does Paramount rebuff Apollo's advances? Let's delve into Paramount Global's financial standing.
Apollo's $11 billion offer for the film and TV studios surpasses Paramount Global's entire market capitalization, reported at $7.7 billion at the time of the Wall Street Journal's reporting. However, market capitalization solely accounts for the combined value of outstanding shares of common stock and fails to encompass cash reserves and outstanding debt.
Hypothetically, combining these factors to ascertain a comprehensive valuation—under favorable circumstances—could near the $25 billion mark for Paramount's enterprise.
Paramount's substantial debt and pension obligations, exceeding $13 billion, suggest Apollo's offer of $11 billion primarily offsets liabilities. Consequently, the offer price would equate to Paramount Studio's enterprise value on new financial tables.
To contextualize, in December 2023, Wells Fargo estimated Paramount Studios' value at approximately $19 billion during a period of elevated stock prices.
Overall, Shari Redstone has consistently expressed reluctance to sell a portion of Paramount, preferring to divest the entirety of the studio. Redstone and NAI Holdings recognize that merely selling the studio to alleviate debt carries inherent risks. Without the studio division, the company's profile could appear diminished and in disarray. Paramount Pictures remains the cornerstone of Paramount Global's holdings.
The way Ambler’s Cut sees things?
This lowball offer from Apollo could serve as a strategic opening gambit aimed at initiating negotiations. By capturing the attention of Shari Redstone, Apollo may seek to position itself for a potential acquisition of National Amusements Inc. (NAI) in its entirety. Should Apollo proceed to acquire Paramount Pictures, it could emulate Sony's successful model of securing an output deal with Netflix. Sony's collaboration with Netflix, entailing exclusive rights to all theatrical releases in exchange for lucrative licensing fees, has solidified Sony's prominence in the realm of output deals. If Apollo were to replicate this approach, it would trigger two pivotal developments: Paramount would become an ‘arms dealer’ in the distribution realm, and Paramount+ would get a bullet to its head (more on this next week).
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