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 He has since been replaced by an “Office of the CEO” consortium made up of three company division heads.

Executives gathered for the company's annual shareholder meeting June 4, where they unveiled a plan to cut $500 million worth of costs. The plan will include layoffs, the exploration of potential asset sales, and partnerships with competitors for streaming joint ventures.

The company has previously weighed selling parts of its business, which industry watchers say will be the norm following the Skydance unraveling. BET and Showtime in particular have been the subject of consistent sale rumors in recent years. Paramount ultimately decided against selling the company in parts, largely due to Redstone's preference to keep the company together.

"There was an attempt to keep the organization intact to increase the value for sale, but now I think they're looking at ways to cost contain and sell off assets versus the whole organization," Hamilton said.

There's still a possibility that Redstone will sell all or a portion of her controlling stake in National Amusements to a third party, analysts said.

"Ms. Redstone now seems set on either continuing the status quo or divesting herself of just her NAI stake," MoffettNathanson analyst Robert Fishman wrote on Tuesday.

Looking ahead, Greenfield said he expects a pause on Paramount M&A activity over the next 12 to 18 months: "There are plenty of aforementioned easy lifts to create value that do not require a sale today."

Still, he believes "National Amusements is keen to sell Paramount eventually."

But Fishman warned, "Any plan, and any potential buyer of Paramount, will have to contend with a company whose mix of assets presents in many ways a challenged hand for navigating the shifting winds of media," a nod to Paramount's linear network exposure, debt-ridden balance sheet, and profitability woes that include losses of $286 million in its streaming business alone.

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

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