What ARE They Smoking?

Happy 4/20, to those that “celebrate”.  Speaking for myself, I’ll have to settle for some CBD balm because, honestly, decent weed is a little beyond my current budget.  Besides, it sure seems like the best stuff in the area is being consumed by some folks in my neighborhood, or at least by some of their more recent visitors.  Especially those who might be working for Apollo Global Management or some of the media outlets covering recent developments.

Honestly, I can’t think of another valid reason why we’re seeing the kind of jubliation that the investment community was exhibiting yesterday, as DEADLINE’s Dade Hayes dutifully reported:

Paramount Global shares jumped 13% Friday as investors cheered news that Sony Pictures Entertainment is talking with Apollo Global Management about joining Apollo’s bid for Paramount.

The beleaguered stock ended the day at $12.44 after registering more than twice its normal trading volume. Shares reached their highest point since February, offering fresh evidence that many investors appear to be gravitating toward the Apollo/Sony scenario, largely for structural reasons.

Now, it’s quite true that there has long been a pas-de-deux between Paramount and Sony, kindred spirit in terms of their classic Hollywood studio environments and frequent business partners on the television side, most notably their shotgun marriage of producer and distributor of WHEEL OF FORTUNE and JEOPARDY!.  Dating back to my Game Show Network days, rumors regularly arose that the two companies were seeking some sort of combination, often at the urging of prominent shareholders like Mario Gabelli.

Except those rumors always reflected the Paramount management seizing control, because as a Japanese-based company Sony is barred by current FCC regulations from owning broadcast TV stations.  And, frankly, for most of that period, the assumptions were that the Paramount teams, especially those at CBS, were better at what they were doing.

Now, that’s arguably far less true, especially in the recent wake of Shari Redstone’s reign of indifference.  Many excellent executives have moved on or have been forced to leave for reasons tied more to political and/or fiscal correctiveness.  But Sony’s track record of late on measures beyond operating efficiencies isn’t stellar, either.

Particularly when one looks at the businesses that Sony would be allowed to operate under the complex tems of this proposed joining of forces, as detailed by REUTERS’ Dawn Chmielewski:

Sony would hold a majority stake in the joint venture and operate the media company, and its library of films, including such classics as “Star Trek,” “Mission:Impossible” and “Indiana Jones,” and television characters like SpongeBob SquarePants, according to the source.

Sony arguably does as good a job as anyone in selling content, having chosen to be an “arms dealer” long before the likes of Warner Brothers Discovery and NBCUniversal pivoted back from their own clawback strategies by necessity.  But that assumes that you have healthy, viable buyers.  And any scenario that leaves entities like the CBS stations and Paramount networks in the hands of a company like Apollo Global almost guarantees they will, at best, cut them to the bone or quickly jettison them to an even less supportive and stable buyer.  While Byron Allen emerged as a ironic white knight early on in this scenario, it’s become abundantly apparent much to his personal disappointment he simply does not have the financial resources or support from potential investors to continue to be taken seriously by those involved here.

And that single-mindedness of shareholder value seems to be the overarching reason why the Sony-Apollo rumblings have surfaced, largely in the wake of their extreme disgruntlement over the current clubhouse leaders.  And as the LOS ANGELES TIMES’ Meg James reported yesterday, a lot of what HAS surfaced is, at best, premature and speculative:

Sony and Apollo haven’t formally made a bid for Paramount. Instead, they are on the sidelines during an exclusive 30-day negotiation period that Paramount’s independent board directors have extended to entrepreneur David Ellison, who heads Skydance Media.

That negotiation period expires in early May.

Ellison has teamed up with investment firms RedBird Capital and KKR in its takeover of Shari Redstone’s family holding company National Amusements, which would be followed by a merger of Skydance with Paramount. Ellison and former NBCUniversal Chief Executive Jeff Shell, who’s now an executive with RedBird, would likely run the company.

Redstone, Paramount’s controlling shareholder, has long preferred the Ellison deal because she doesn’t want the company, which her father Sumner Redstone built over two decades, to be broken into pieces. But the Ellison proposal has generated a strong backlash by Paramount investors who contend the deal would benefit Redstone and not regular shareholders.

And the current executive in charge of the Gabelli interests reminds that that potential backlash could get quite ugly. as Hayes continued:

Chris Marangi, Co-CIO of Value at Gabelli Funds, believes Paramount could ultimately be worth $30 a share (well north of a potential Apollo-Sony offer in the range of $20 to $25 a share. Marangi is not an unbiased party, of course – Gabelli, an asset management firm, owns the second-highest stake in Paramount voting shares after NAI.

“Shari is looking to sell her stake, which she can do,” Marangi said in a statement. “But how Skydance merges their business into Paramount in a way that benefits all shareholders is the sticky part. That’s the part that’s potentially subject to litigation.”

The track record of the executives associated with the Ellison bid, especially Jeff Shell, are top notch.  RedBird’s management also includes Jeff Zucker, who may not win many personality contests but who knew how to build solid news organizations.

The best Sony can offer is veteran CEO Tony Vinciquerra, who ironically replaced Shell at FOX and spent a good deal of his time undoing and undermining a number of the businesses Shell engineered.  And his tenure at Sony is a similar tale of efficiency over effectiveness.  The movie studio has been artifically propped up the SPIDER-MAN franchise, IP that it does not control.  Many international networks under their watch were underperforming, with Sony walking away entirely from the APAC region.  Its CRACKLE streaming service, which was one of the earliest entrants into that realm, spent more than a decade caring far more about how it looked that what it was running, and under Vinciquerra’s watch devolved into a repository for third-tier originals with minimal star value, a poorly engineered interface where the same commercials ran incessantly through shows and never made a dent against its more focused and entrenched competitors.  It was eventually sold off to, of all companies, one that operated CHICKEN SOUP FOR THE SOUL.

Does THAT sound like the secret sauce for, say, Paramount Plus?  Especially since any deal with one of its few allures, the NFL, would need to be restructured under a scenario where Apollo took control?  Assuming, of course, Apollo even kept CBS at all.

And as someone who has worked there, I can assert that the appetite for software in Tokyo has never been a priority with top corporate management.  The whole reason the company chose to acquire Columbia Pictures was to find content to help them sell TVs and sound systems.  Sony Music remains one of the more profitable entities, and the internal focus in recent years has been to find synergies that can benefit PlayStation content, such as the one that produced one of the few breakout hits of the Vinciquerra era, HBO’s THE LAST OF US.   Remind me what kinds of music and gaming assets are part of the Paramount Global portfolio?

Small wonder that Hayes reports that there are many less biased parties that are looking at what’s going on over at the Sony lot with a bit less glee and celebration than those are Wall Street are bestowing upon them:

While Skydance appeals to many media industry vets given Ellison’s strong track record and enthusiasm for keeping Paramount Pictures intact, the deal it is pursuing has inherent strings attached. National Amusements Inc., which is run by Shari Redstone, owns 77% of Paramount’s voting shares but only about 10% of its equity. That means a deal for NAI risks diluting other shareholders. Thus the chilly reception thus far on Wall Street, though it is worth noting that the negotiations are still continuing.

“It’s hard to know what investors are reacting to when so much is up in the air about what shape the different deals would actually take,” one dealmaker familiar with the Paramount talks told Deadline.

Especially when all indications are that when the smoke did clear, there would be far fewer people employed, likely at far fewer divisions, assuming they even existed at all.

And I for one would offer that a company that chose to walk away from the proven track records of executives like Shell and Zucker, and even the impressive redevelopment of the Skydance portfolio, notably TOP GUN, would be blowing smoke up one’s you-know-where if they were to contend that the options of those at Apollo and Sony are superior.

And that, dear reader, is the blunt truth.

Until next time…

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