Paramount takes major step toward finalizing merger with Skydance

A special committee of Paramount’s board of directors signed a merger agreement with Skydance on Sunday, two people familiar with the negotiations said, setting the stage for a new era for CBS, Nickelodeon and the studio behind the “Top Gun” and “Mission: Impossible” franchises.

Shari Redstone, Paramount’s controlling shareholder, is expected to follow suit Sunday night, and the companies plan to announce the deal as early as Monday, the sources said. Ms. Redstone could still change her mind, but this is the closest the two companies have come to announcing a deal after months of difficult negotiations.

The deal would be a turning point for the Redstone family, whose fortunes have been intertwined with the rise and fall of the traditional entertainment industry during decades of tumultuous ownership by Paramount and its predecessors. Ms. Redstone, Paramount’s chairman, would cash in much of her ownership in the company she fought to keep and control.

The merger would herald a new Hollywood mogul. David Ellison, the tech scion behind Skydance, will become Paramount’s chief power broker. The deal is in some ways a story of media writ large, with a family that made its fortune in traditional entertainment largely replaced by one enriched by technology — Mr. Ellison is the son of Oracle founder Larry Ellison. The Ellisons’ considerable resources have been a major selling point for the Redstones, who have sought to bolster Paramount for the long term.

In recent years, Paramount has become the poster child for a traditional media industry that’s been limping along in the shadows of streaming giant Netflix and tech companies like Amazon that have plenty of cash to spend on their media bets. Paramount has tried to replace its ailing cable TV business with streaming companies like Paramount+, but those efforts haven’t been nearly as profitable as traditional TV operations.

The full value of the merger wasn’t immediately clear because of the complexity of the deal. Skydance and its financial backers would acquire National Amusements, the company that owns the Redstone family’s voting shares in Paramount, for about $1.75 billion. Paramount would also merge with Skydance, giving the studio and its backers control of a media empire that includes film, TV and news products.

Paramount’s market capitalization — the value the stock market assigns to the company — is about $8.2 billion. Skydance’s last reported valuation was more than $4 billion.

A public offering by Skydance would allow many holders of Paramount’s nonvoting shares to cash out for about $15 per share. Investors who own voting shares could sell for $23 per share. This would allow investors who feel hurt by the Skydance deal — and there are many — to get rid of the company’s stock at a premium to its current price of $11.81.

The merger with Skydance would close a chapter for Ms. Redstone, 70, who took over from her father, Sumner, and fought to keep the family’s media empire intact.

Skydance’s acquisition of Paramount is a drama worthy of a summer blockbuster. Since the beginning of the year, Ms. Redstone, Paramount and Mr. Ellison have been engaged in semi-public negotiations that have regularly leaked to the press and undermined goodwill on both sides.

Executives appeared close to a deal last month. But the renegotiated terms reduced the value of Ms. Redstone’s controlling interest. As a special committee of Paramount’s board of directors prepared to make it official, Ms. Redstone’s lawyers emailed them to block the deal, saying they could not agree on “noneconomic terms.”

With the deal on ice, other suitors emerged to woo Ms. Redstone, including billionaire Barry Diller and Steven Paul, the producer best known for the “Baby Geniuses” film franchise. But the Skydance deal came back last week, with Skydance improving its bid for Ms. Redstone’s stake and offering stronger protection from lawsuits.

The provisions could help ease the challenge posed by investors who oppose the Skydance deals, which they say would enrich Ms. Redstone at the expense of other shareholders. All of the Skydance mergers that have been considered have guaranteed her an extra payout in exchange for her voting rights — commonly called a control premium — that some shareholders have argued is unfair. A small number have threatened to sue.

The merger would come at a precarious time for Paramount. Its flagship streaming service, Paramount+, is losing hundreds of millions of dollars in cash each year. After a clash with Ms. Redstone, the CEO, Bob Bakish, was replaced by three executives running an “office of the CEO” — an awkward, temporary solution. And the cable business is in long-term decline, with shares down more than 70 percent in the past five years.

Over the past month, Paramount’s three CEOs have outlined a plan they say will get Paramount back on track, including cutting $500 million in costs and selling off parts of the business that aren’t central to its strategy. Losses are starting to narrow at Paramount+, and the company is exploring a possible joint venture with other companies that could further reduce costs.

The man who would take control of the ailing company is a Hollywood producer who helped finance some of Paramount’s biggest franchises. After dropping out of the University of Southern California to try his luck as an actor, Mr. Ellison turned to financing films and founded Skydance in 2010. The company has produced some of its most successful films with Paramount, including “Top Gun: Maverick” and “Mission: Impossible — Dead Reckoning Part One.”

Mr. Ellison, 41, plans to bring his own cast to Paramount. Jeff Shell, a former CEO of NBCUniversal, is in talks to take a key role, two people familiar with the matter said. He was fired from NBCUniversal last year after a CNBC anchor filed a sexual harassment complaint against him. Late last year, he joined Redbird Capital Partners, a backer of Skydance, as chairman of sports and media.

Mr. Bakish, 60, will remain a consultant to Paramount. His exit agreement, filed in May, says he will continue working for the company through October with a monthly salary of $258,333 and benefits. His exit package also includes a two-year nondisparagement agreement.

While Mr. Ellison has not spoken publicly about his plans for Paramount, he has briefed the board on his intentions, according to two people familiar with the matter. Mr. Ellison has discussed the possibility of teaming up with one or more of Paramount’s rivals on a combined streaming service. He also plans to boost the company’s technology by adding better personalization features to the streaming service.

Another pillar of Skydance’s plans for Paramount is cost-cutting. The company plans to consolidate some of its international operations, boosting profits in part by laying off workers. That won’t win Mr. Ellison many fans among the company’s rank-and-file members, though it could help him appease shareholders.