Hello, Reader.
Picture this: A family-owned global media conglomerate worth billions of dollars… and a bitter fight to preserve the family’s legacy or to sell and walk away with billions in their pockets.
It may sound like a new season of HBO’s Succession, but I’m talking about Paramount Global (PARA) and the real-life drama surrounding it.
Paramount is structured differently from most publicly held companies. Its dual-class structure means that Shari Redstone – daughter of the late media mogul Sumner Redstone – effectively controls 77% of all voting stock. Unfortunately for shareholders, her control of the company has stood in the way of their best interest.
Markets should have cheered when private equity group Apollo Global Management Inc. (APO) offered to buy Paramount for $26 billion last week. The offer would have given shareholders roughly $17 per share in cash. Any normal CEO would have looked at their company’s $11 share price and rolled out the red carpet.
Instead, Shari Redstone said no.
Throughout this made-for-TV drama, Paramount remains wildly undervalued. But does that make it a good buy right now? I’ll answer that question in today’s Smart Money.
Let’s take a look…
Downside in the Upside
Ordinarily, a firm like Paramount would be worth at least $17 – the net cash value per share of Apollo’s $26 billion bid. A deal with Apollo would create no potential antitrust concerns, and the nature of the offer would have awarded shareholders a guaranteed payout.
On the higher end, Paramount’s stock could be worth as much as $25 today. Analysts expect the firm to generate $1.03 cash flow per share this year, and $1.79 per share by 2026 as streaming costs moderate relative to revenue.
The company’s cable enterprise – which includes MTV, Nickelodeon, and Showtime – finds itself in decline, but a well-managed one that continues to throw off strong cash flow. A three-stage discounted cash-flow model values this combined future payment stream at $25, a 220% upside from current levels.
However…
Unscripted Drama
Over this past weekend, The Wall Street Journal reported something worrisome…
Common shareholders could get a different deal than the Redstone family in a merger.
After turning down Apollo’s bid last week, Paramount’s executives entered exclusive talks with Skydance Media, a production company run by David Ellison, the son of Oracle Corp. (ORCL) founder Larry Ellison.
In this latest round of talks, Skydance is now offering $2 billion to buy Paramount parent company National Amusements (like I said, Paramount is an oddly structured company) and merge itself with Paramount.
The outcome – which would require approval from a special committee of Paramount’s board – will leave the Redstone family with cash, while giving nonvoting shares potentially diluted stock in the new firm. The dilution amount will depend on the ratio of Paramount shares to Skydance ones.
Paramount’s growing corporate governance issues now leaves doubt whether this cash flow will end up with common shareholders.
Paramount’s directors were supposedly “unconvinced” about the $26 billion Apollo deal because it wasn’t clear how Apollo would finance its bid – which is a bizarre thing to say about a $300 billion buyout empire.
And this latest round of talks with Skydance shows that the Redstone family seems more interested in maintaining its patriarch’s legacy than with rewarding shareholders with returns. The most likely offer now has Paramount absorbing Skydance’s far smaller movie studio, which will do little to move the needle.
Where to Find The Right Stocks
So, even though Paramount shares have as much as a 220% upside, I don’t suggest putting money into this company right now, especially pending merger talks with Skydance Media.
However, to find out which companies I do recommend right now, look no further than Fry’s Investment Report.
At Fry’s Investment Report, I look for big-picture trends that drive huge, multiyear moves in entire sectors of the market…
In any asset… in any country… in any direction. The type of trends that can spin off dozens of multi-digit gains in a span of a few years.
In each issue, I not only analyze the global macro environment and share with you the best strategies to make the most of it. I also pick the right stocks – and recommend you buy them at the best prices.
And you’re in luck. Tomorrow, I’m releasing the April edition of Fry’s Investment Report.
To make sure you have access to the monthly issue as soon as it comes out, click here.
(If you are already a member of Fry’s Investment Report, you can log in here after tomorrow’s issue drops.)
Regards,
Eric Fry
