The scions of two of America’s best-known billionaire families are scrambling to mastermind one of the most complex media mergers in recent memory, as the future of the storied Paramount studio hangs in the balance.
Skydance, a production company founded and run by David Ellison, is in negotiations with media mogul Shari Redstone to acquire National Amusements (NAI), a privately held cinema company that controls 77 per cent of Paramount’s voting stock.
After several weeks of talks, Skydance this week began preliminary due diligence on a potential deal, according to people familiar with the matter.
A combination would bring together Skydance’s growing independent studio with one of the most celebrated businesses in Hollywood. With its iconic lot on Melrose Place and 110-year old library of films from The Godfather and Chinatown to Titanic and The SpongeBob SquarePants Movie, Paramount is one of Tinseltown’s crown jewels. But it is also saddled with declining legacy television assets and a heavy debt load.
In some ways the two executives make for an odd pairing — Redstone, the 69-year-old Boston native and daughter of the late Sumner Redstone, is almost three decades older than the youthful, blonde-haired Ellison, son of Oracle co-founder Larry Ellison.
But in recent months they have bonded about what they have in common, according to people familiar with the talks, with both having spent the past decade trying to prove themselves under the shadow of their larger-than-life billionaire fathers.
Ellison entered Hollywood as an outsider and was initially viewed as an example of “dumb money” — wealthy individuals who naively invest in the glamour of entertainment. But he has proved himself by co-producing a number of hits, including Top Gun: Maverick and Mission Impossible, building Skydance into a $4bn company with investments from RedBird Capital, KKR, the Ellison family and Tencent.
A Paramount deal, if he is able to pull it off, would launch him into the upper echelon of power players in Hollywood.
Redstone, from the third generation of a family that helped inspire HBO’s Succession, has worked hard for years to confound sceptics who questioned her readiness to run the media group. Chief among them was her own father, who once told Forbes she had made “little or no contribution” to building the family empire.
Once she gained control of NAI in 2018, most in Hollywood believed Redstone was digging in to run it for years. Beginning last summer, however, she started talking to a few groups that had approached her about making a deal — including Skydance, according to people familiar with the situation.
Selling would mean relinquishing control of a company that has been in the family for nine decades.
It began as a handful of New England drive-in cinemas built by Redstone’s grandfather in the 1930s. Sumner Redstone, who would become one of Hollywood’s most eccentric characters and popularised the phrase “content is king”, transformed NAI into a global media empire, winning a battle with Barry Diller for control of the Paramount studio in 1994 and moving into television with acquisitions of Viacom and CBS.
Asked about Redstone’s willingness to entertain offers, people who have dealt with the mogul noted the tougher industry landscape as “cord-cutting” shrinks the traditional TV business. They also said she had been dedicating more of her time to fighting antisemitism following the October 7 Hamas attack on Israel. Redstone was given the Simon Wiesenthal Center’s humanitarian award last year.
Others, however, point to pressures on NAI as a factor behind her exploration of a sale.
The company is being looked at by other potential bidders. Private equity group Apollo recently expressed interest, while Paramount shares jumped as much as 13.5 per cent this week after media entrepreneur Byron Allen made a $14.3bn bid to buy all of the group’s outstanding shares, although there are questions about his ability to finance the deal.
But the talks with Skydance were the most advanced, according to one person familiar with the matter.
The deal being discussed is unusual, with Skydance planning to take control of Paramount by first acquiring NAI and then merging Paramount with Skydance. This is cheaper for Ellison than buying out the common stock of Paramount, which is worth more than $9bn, since it will not have to pay the same level of a premium to all shareholders. However, the process would be complicated.
“The structure that Skydance has proposed takes full advantage of Paramount’s dual-class structure, and unlike other reported potential match-ups, signals the Redstone family may be ready to cash out,” Bernstein analyst Laurent Yoon wrote in a recent report.
NAI, the investment group founded by Redstone’s grandfather, owns 73 cinemas, mostly in New England but with some in the UK, Brazil and Argentina. While it has long been modestly profitable, its main source of income is the generous dividend paid for its holdings of Paramount stock.
Like other cinema groups, NAI suffered through the Covid-19 pandemic, and its finances took a hit. As its cinemas business was losing money last year, Paramount slashed its dividend on the common shares from 24 cents to 5 cents — reducing a source of income for NAI and Redstone herself.
So Redstone turned to former Goldman Sachs banker Byron Trott, who helped raise $125mn in preferred stock for NAI. His firm, BDT, also arranged a $100mn shelf loan.
“They’ve been burning cash throughout the last year or so,” said Oliver Vande Stouwe, an analyst at S&P. “That’s why you saw them do this preferred equity raise in May — they needed some source of liquidity to continue operations.”
Rating agency Moody’s last week downgraded NAI’s debt by two notches to Caa1 citing “a heightened risk of default” on a $231mn term loan, in part because of a lighter slate of film releases after last year’s Hollywood strikes. Moody’s also warned that the Redstone vehicle had an “untenable debt capital structure”. Its next payment of $37mn is due in March.
Redstone’s father used his tax law training to concoct complex transactions including acquisitions of Viacom, Paramount Pictures and CBS. The deal under discussion with Ellison’s advisers would also be complex — and risk triggering lawsuits from Paramount shareholders, according to investors and analysts. If NAI were to be sold, the super voting class A shares would transfer to the new owner.
Mario Gabelli, a longtime media investor who is the second-largest holder of NAI’s voting shares, told the Financial Times he was opposed to any deal that favoured one class of investor over another. “We’re going to speak loudly and carry a big stick” to protect common stockholders, he said.
The largest holder of Paramount’s B shares is Warren Buffett’s Berkshire Hathaway, which in 2022 disclosed a stake of about 75mn shares at $28 per share — almost twice the share price today.
Trott, who has been advising Redstone, has previously also worked as an investment banker for Buffett.
Speculation about Paramount’s future heated up last autumn after its senior executives were granted golden parachute provisions that would kick in if the company were to be acquired. The shares rose by 39 per cent after the change of control provisions were disclosed but have since given up some of those gains.
Paramount has been viewed as a potential target for consolidation for several years. Investors and analysts believe the studio is too small to compete in a landscape dominated by much larger tech groups and media conglomerates. It has the highest debt-to earnings before interest, taxes, depreciation and amortisation ratio in the sector and, like other legacy media groups, is coping with declining TV assets while its streaming service, Paramount+, is still not profitable.
Skydance would be open to selling some assets, such as television network CBS, as part of an effort to restructure the company and monetise parts of the business that do not fit well together.
There is no guarantee that any of the potential bidders for Paramount will emerge with the Redstones’ crown jewel. But the primary question surrounding Paramount’s future appears to have been answered: Redstone is at least open to selling.
“Now that the market knows the Redstone family is open for business, the list of potential buyers could expand,” says Bernstein’s Yoon.