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The future of Paramount Global (PARA) now hangs in the balance after Shari Redstone, who controls Paramount through her family's holding company National Amusements (NAI), ended merger talks with Skydance Media.
"I was surprised," J. Christopher Hamilton, a former entertainment industry executive and professor at Syracuse University, told Yahoo Finance. "The deal seemed like it was pretty far down the road."
Hamilton was not the only one shocked by the decision. An independent special committee of Paramount's board recently recommended the economics of the Skydance deal after months of back-and-forth — and was even slated to vote on the merger just before Redstone's reversal.
Investors also took notice, with shares of Paramount falling about 8% after the decision became known to the public.
"Immediately, we heard industry execs and investors calling her crazy and many other unspeakables for not 'taking the money' from Skydance," LightShed Partners' Rich Greenfield wrote on Wednesday.
So why did Redstone walk away — and what could the decision mean for the company she controls?
"Ultimately, we believe the legal risk of Skydance’s proposed transaction proved to be far too high relative to National Amusements alternatives," Greenfield wrote, noting the Skydance transaction was "great" for Redstone and NAI but "awful" for public Paramount shareholders.
Skydance, which has previously collaborated with Paramount on the production of popular film franchises including "Mission Impossible," "Top Gun: Maverick," and "Transformers," reportedly revised its offer multiple times after nonvoting shareholders expressed concerns over the terms of the initial discussions, which would have given Redstone $2 billion in cash as the first step in the transaction.
But critics maintained the offer still unfairly benefitted Redstone while diluting the holdings of public stakeholders. The threat of litigation loomed as a result.
Hamilton agreed that threat was a primary overhang for the transaction, especially since Redstone likely needed to be indemnified against potential lawsuits as part of the deal.
"I just don't think that was a level of risk that Skydance was willing to accept," he said.
What's next for Paramount
Amid the merger drama, Paramount announced the departure of CEO Bob Bakish in late April after he was reportedly at odds with Redstone over the Skydance deal. He has since been replaced by an “Office of the CEO” consortium made up of three company division heads.