What a Sony, Apollo buyout of Paramount looks like: Analyst

Sony Pictures Entertainment (SONY) has entered talks with Apollo Global Management (APO), the parent company of Yahoo Finance, to discuss a possible joint buyout bid of Paramount Global (PARA,PARAA). According to the New York Times, both companies, through a joint venture, would offer cash for shares of Paramount, taking the company private.

Citi Managing Director Jason Bazinet joins The Morning Brief to discuss the potential joint buyout bid from Sony and Apollo and what it could mean for all companies involved and investors moving forward.

In terms of what consumers can expect, should a deal go through, Bazinet says: "I think you'll see fewer apps...If this bid between Apollo and Sony is right, Sony is really sort of an arms dealer, right? So they're going to presumably take the studio and just feed everybody's app. Then I would think that someone on the private equity side would, sort of, not want to absorb the losses from a streaming app like Paramount+ and would just focus on the cash-generative assets and pay down debt to create equity value."

For more expert insight and the latest market action, click here to watch this full episode of Morning Brief.

This post was written by Nicholas Jacobino

Video transcript

SEANA SMITH: All right, Jason. Let's talk about another big story that we're following here today, another stock that you cover. And that is Paramount. When you take a look at share reaction here this morning, we've got the stock up just about 10% here in early trading.

And it is on reports that Sony is in talks here to join a potential bid by Apollo for interest in or, potentially, taking over Paramount. Your reaction to this. What this signals. And then more broadly-- actually, first answer that. And then I want to follow up with something real quick. Go ahead.

JASON BAZINET: Well, let me just start. The most important thing about Paramount is there's an entity that sits above it called National Amusements. And the Redstone family controls about 10% of the economics and only almost 80% of the vote.

And so a lot of the deals that have been talked about in the press with Skydance were really about Skydance buying NAI's shares and, essentially, getting control of Paramount without paying a premium to the public shareholders.

So when the stock gets to $11, that's what the buy side thinks is most likely. If you end up having an alternative bidder, someone that presumably would pay all shareholders a premium, then you see the stock rally. And that's when you get closer to $14 or $15 a share.

SEANA SMITH: Jason, this isn't necessarily, though, good news here for Paramount for shareholders. Because when you take a look at some of the consolidation that has happened, mergers that have happened in the past most recently within the media space, when you take a look at WarnerMedia and what has played out with Discovery, it hasn't exactly been easy. Does this necessarily change, I guess, the view or the uphill challenge that is still present here for a name like Paramount?

JASON BAZINET: Well it's still a challenge. I would say, what you've captured is the consensus right now on the buy side, which is media consolidation does not work. It's not allowed them to compete effectively with Netflix. It's absolutely the wrong conclusion to draw.

It's a fair observation. It's been more difficult. But consolidation is absolutely critical for these companies to compete. Why? Because consolidation means fewer apps. It means you can put more content on those apps without spending more money. That, ultimately, is going to reduce churn, reduce marketing spend. So it's absolutely critical.

So the main thing that the Street wants to see, if there is consolidation, is leverage has to go down day one. That's the most important thing.

BRAD SMITH: What's the most identifiable difference that customers could or should expect, if Paramount does get acquired?

JASON BAZINET: Well, I think you'll see fewer apps. That's what I would say. Presumably, if this bid between Apollo and Sony is right, Sony's really an arms dealer. So they're going to presumably take the studio and just feed everybody's app.

And then I would think that someone on the private equity side would not want to absorb the losses from a streaming app like Paramount Plus, and would just focus on the cash generative assets and pay down debt to create equity value.