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Paramount: Stock jumps as Bellator sale, severance pacts add to 'M&A narrative'

Paramount Global (PARA) stock closed nearly 6% higher on Monday following two new developments that suggest the struggling media giant could be exploring more M&A deals.

Late Friday, the company quietly revealed in an 8-K filing that current executives including CEO Bob Bakish, CFO Naveen Chopra, and executive VP Christa D’Alimonte will be offered severance if they are terminated within two years "following the consummation of a change in control."

Also on Monday: The Saudi-backed Professional Fighters League (PFL) confirmed it completed the acquisition of mixed martial arts promoter Bellator from Paramount, which previously controlled the rights.

The deal comes after Paramount announced its Showtime sports division, which included boxing and MMA, will shut down at the end of the year. Terms of the acquisition were not disclosed although reports suggest PFL stock was included in the sale, which will allow Paramount to maintain a minority ownership stake.

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"PARA's recent announcements on severance/change in control + Bellator sale adds to the M&A narrative," Wells Fargo analyst Steve Cahall wrote to clients on Monday.

Paramount has long been viewed as a potential acquisition target due to its small size relative to competitors. The company boasts a current market cap of just around $9 billion, compared to Disney's (DIS) $170 billion and Netflix's (NFLX) $208 billion.

However, Cahall said he remains "skeptical there's a more drastic change in strategy coming," explaining that although the severance changes are "positive at face value," that doesn't necessarily indicate a higher likelihood of M&A.

"It's all up to Chairwoman and controlling shareholder Shari Redstone," he said. "PARA is willing to part with non-strategic assets, but we don't see it parting from major assets like CBS, Studios, etc. And, we don't think there are buyers for it as a whole," he wrote.

Cahall, who maintained his Underweight rating and $12 price target, said a "meaningfully profitable" direct-to-consumer (DTC) streaming business could change that outlook as it would mean the company can survive unfavorable linear television trends, which have been hard hit by cord-cutting.

In the prior quarter, the company reported a DTC loss of $238 million, narrower than analyst expectations of $438 million and the $343 million loss seen in the year-earlier period.

Paramount now forecasts full-year direct-to-consumer losses in 2023 will be lower than in 2022, with anticipated fourth quarter DTC losses similar to the year-ago period.

To note, virtually every media company has been bleeding money in streaming, with the exception of Netflix (NFLX) and, most recently, Warner Bros. Discovery (WBD).

"While DTC losses are getting better faster it's an uncertain path to break-even ... clarity on DTC profits would change that outlook," Cahall said.

Paramount executive Bob Bakish attends the 2022 MTV Europe Music Awards (EMAs) at the PSD Bank Dome in Duesseldorf, Germany, November 13, 2022. REUTERS/Thilo Schmuelgen
Severance sweetened: Paramount executive Bob Bakish. (Thilo Schmuelgen/REUTERS) (Thilo Schmuelgen / reuters)

The company has recently committed to divesting non-core assets as it works to pare down debt and improve its balance sheet. Last quarter, it announced the sale of Simon & Schuster to investment firm KKR after the publishing giant's sale to Penguin Random House collapsed late last year. The $1.62 billion, all-cash deal was completed last month.

Paramount's strong slate of assets suggests more M&A activity to come. Showtime and BET Media Group have been two assets recently the subject of sales rumors, although no deals have been made.

Alexandra Canal is a Senior Reporter at Yahoo Finance. Follow her on Twitter @allie_canal, LinkedIn, and email her at alexandra.canal@yahoofinance.com.

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