The Journal. - Mayhem at Paramount as Merger Looms

Episode Date: May 1, 2024

On Monday, Bob Bakish stepped down as CEO of Paramount, one of America’s most iconic media companies. WSJ’s Jessica Toonkel reports on how Bakish’s relationship with Shari Redstone, chair of Paramount, has deteriorated amidst one of the messiest merger dramas in recent history.  Further Reading: - A Media Heiress’s Bid to Sell Sets Off Mayhem Inside Paramount  - How Bob Bakish, the Anti-Mogul CEO, Struggled to Rescue Paramount  - Shari Redstone’s Path to Power  Further Listening: - Why Buying Paramount Global Won’t Be Easy  Learn more about your ad choices. Visit megaphone.fm/adchoices

On Monday, the CEO of a major entertainment company stepped down. We're getting some news that Paramount Global is announcing new leadership changes. The Paramount Global chairman, Sherry Redstone, has lost confidence in Paramount CEO Bob Backish. Bob Backish is out as head of Paramount Global. CEO Bob Backish. Bob Backish is out as head of Paramount Global. The company replaced... After seven years at the helm, Backish was no longer running the company

that is home to broadcaster CBS. Those stories and more tonight on 60 Minutes. Comedy Central. It's America's only source for news. This is The Daily Show. And classic movies like The Godfather. Indiana Jones. And Titanic.

Backish had been thrown overboard as a result of mounting tensions between him and Paramount's board and its owner, Sherry Redstone. And is there an analogy between Paramount and the Titanic? One could argue at this point in the media landscape, when people are canceling their cable subscriptions in droves and advertising is very much in flux, you could say that maybe there's some moving of the deck chairs on Paramount slash the Titanic. I would say that's a fair analogy. That's our colleague Jessica Tunkel, who broke the story about Backish. She says that this is the latest twist in a long saga for the media giant. It's everything all at once. It's every potential catastrophe you could ask for all at the same time. It is a lot.

all at the same time. It is a lot. Welcome to The Journal, our show about money, business, and power. I'm Kate Leinbaugh. It's Wednesday, May 1st. Coming up on the show, an ousted CEO, an owner who wants out, and the deal that's fracturing paramount. Attention all soccer fans, from Orlando to Los Angeles, take to the fields of the USA for your next vacation. Ready to kick off? Discover exciting games and events. Plus, find amazing hidden gems in cities full of adventures, delicious food, and diverse cultures. You'll love it so much you'll want to extend your stay beyond the matches.

Get the ball rolling on your soccer getaway. Head to visittheusa.com. The Redstone family has owned Paramount for decades. And in 2019, Sherry Redstone took control from her father after a fierce battle. She had to fight with his ex-girlfriends. She had to fight with former executives. And she really put a lot into taking over the media empire. So she's a fighter. She is a rock star fighter, I will say that. She will fight for what she believes in, absolutely.

When Sherry Redstone took over, she had a vision for the company. She wanted to consolidate all its media assets under one roof. You have CBS Sports, you have football, and you have news with Paramount's amazing movie studio and all the content that it has. It would better compete with all the big guys, the Disneys, the Netflixes, all of them. And she really believed that that's what would work. Redstone promoted longtime executive Bob Backish to carry out her vision.

He was very no drama. He's like a consultant by trade. You know, he's not a Hollywood type. He doesn't like, you're not going to see him on the red carpet, like with all the stars. He's like, I'd rather talk about the cable agreements and, you know, streaming revenue and ad revenue and EBITDA. That's like his happy place. What was their relationship like? Sherry Redstone and Bob Backish? Their relationship was very good for many years. He was a loyal lieutenant. And she, from all accounts, as much as she gets a lot of criticism for controlling behind the scenes and that he did everything she wanted him to do, she really deferred to him.

She let him make these decisions and she believed in him. And I think she had reason to believe in him. He made a lot of really good decisions historically. On Backish's watch, the company created Paramount Plus, its streaming division. It also secured a major NFL rights renewal deal, and the company had some Hollywood hits like Top Gun Maverick. But there were lots of challenges too. Paramount's cable business was shrinking, the company was losing revenue, and it began cutting costs. Some investors thought it might be a good time to see if Paramount was willing to sell assets. Netflix and Apple both showed interest in Paramount Studios. And in 2021, there was an offer

for its premier cable channel, Showtime. It was for $6 billion. It was a formal bid. And Bob Backish turned it down. It is unclear whether the board knew how serious it was at the time. I've heard conflicting things on that. Two years later, there was another bid.

The former head of Showtime came to Sherry and said, I'd like to buy Showtime. I have more than $3 billion. She said, go talk to Bob Backish. Bob turned down the offer. said go talk to Bob Backish. Bob, turn down the offer. Though Redstone was open to some deals, she held out hope that a big buyer,

maybe a tech giant, would emerge to take the whole company off her hands, not just parts of it. But Paramount's business continued to decline, and its leaders needed to do something. Last May, they announced a dramatic cut to the dividend. The money paid out to shareholders each year. Bob Backish and his team convinced Jerry,

it's time to cut the dividend. We need this money to invest in our own operations, particularly our streaming service. And it'll be good for the company. It'll be good for the stock. That was the sell. The stock will go up. Investors will see this as a growth stock. But that move didn't go over well.

It is Paramount sinking after missing earnings. All pays for the worst day ever. Paramount shares dropping today. Paramount Global shares plummeting today off 26 percent after the company missed earnings expectations and slashed its quarterly cash dividend to just five cents a share. The stock is down more than 50% over the past year. And so she really regretted being tucked into that decision. This was bad for the Redstones. Their stock had plunged in value and they got significantly less income after the dividend was cut.

So Sherry Redstone started thinking seriously about finding a buyer. My sources have told me that about a year ago is when she started saying she wasn't having fun anymore. She was building a house in Turks and Caicos. She would show friends photos of the house. You know, she's very close to her grandchildren. She's very devoted to focusing on anti-Semitism. The October 7th attacks in Israel really kind of clinched this moment for her that she really wanted to do other things. She was just feeling like she wanted to move on. Late last year, David Ellison, son of Larry Ellison, the co-founder of Oracle, contacted Sherry Redstone.

David Ellison had an idea involving his company Skydance, a small media company with deep pockets. She met with David Ellison last December. He came to Connecticut to her home. They had lunch. He presented his whole plan to acquire her company, National Amusements, which is the entity through which she controls

Paramount, and then merge his company Skydance into Paramount. But he was going to put more resources into it. He has this relationship with Oracle, and you could move some things to the cloud. And you would make Paramount more competitive with Netflix. It was this great vision, and she believed it, and she bought into it, and she liked it. Sherry Redstone may have liked that deal, but a lot of people didn't. That's next. That's next. Whether it's pantry staples or seasonal favorites, you can look forward to new discounts throughout the aisles at Loblaws to get your essentials at great prices. It's your cue to stock up and save.

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There were two parts to Skydance's offer. First, it would buy Sherry Redstone's controlling stake in Paramount for $2 billion, well above its market value. The other part of the deal was the two companies would merge. Paramount shareholders would not get cash in the deal. They would get stock. And some of those shareholders came out strongly against the deal, raising concerns that it would only be good for Redstone. And how did Bob Backish react to this deal?

Bob has also told people that he has concerns about this deal. He does not think it's best for all shareholders. It may be good for Sherry. He's also a shareholder. He wants the best thing for all of the non-voting shareholders. But on top of that, you now have other bidders starting to circle. So we were first to report that private equity company Apollo has come in with an offer. How solid the offer was, unclear, but there was a letter.

There was a numbers 26 billion in the letter. Wow. For Paramount. The committee did not engage with that letter because they said they didn't think it was serious. They weren't sure if they had the financing, but that's a big number. That's a big number.

Paramount's board committee decided to go in deeper with Skydance, and the two companies agreed to start exclusive merger talks. So shareholders are like, wait a minute, we could have gotten $26 billion in cash and gotten out of this, rather than us be shareholders in this merged company, that doesn't work for us. We don't want that. So there have been letters after letters. I mean, you should see my email blocks.

I have all these shareholders who are like furious about the situation. So there's like a shareholder revolt because they're like $26 billion sounds a lot better than stock. And PS, cash seems a lot better than stock. Yeah. Some of these shareholders feel like they've hung with Paramount for really difficult times. Some of them, they're ready to cash out.

Yeah. So why didn't Paramount start talking to Apollo? Paramount, according to my sources, the committee felt that they were far along with Skydance, and they weren't sure how serious Apollo was. So they wanted to continue with potential buyer that they felt was serious. People close to Apollo say it was a real offer, and Paramount's directors just chose not to pursue it. But unbeknownst to everyone, Bob Backish himself was talking to yet another company about yet another deal. Paramount Plus, but he basically got very far along with a deal and came to them and said, this is the deal I've gotten. We have a handshake deal. We're about to sign off on it. And the board and Sherry were like, wait a minute. We can't do this deal when we're in the middle of Skydance negotiations. You can't do a deal, a joint venture for your streaming service,

if you're about to sell everything to another company. Secondly, they also said that the terms of the deal were really bad. Over the past few weeks, the cracks in Backish's relationship with the board and Redstone were becoming more and more visible. And last Friday, Jessica got that scoop that Backish was on his way out. Was that surprising to you? I had been hearing about these increasing tensions for several weeks. I was still sort of like, there's no way this is going to happen

for so many reasons, but it did. On Monday, Paramount said it was parting ways with Bob Backish and installed a committee of three executives to run the company. In announcing his departure, Redstone thanked Backish for his, quote, many contributions over his long career. Is the Skydance deal dead?

No, the Skydance deal is not yet dead. They just came back. Skydance came back with a better offer for shareholders that involves more money on the balance sheet, about to the tune of $3 billion, and offering a premium to shareholders. It's a little fuzzy, but it's an independent committee of directors. They do need to make a decision. Exclusivity on those negotiations between Skydance and Paramount are set to expire on Friday. And if that Skydance deal doesn't come through?

So sources have told me that Sherry will just sell the controlling company so she can still get out if she wants to. And then this will be someone else's problem. In the end, she's going to come out with money. In the end, she's going to come out with money, but it's a lot less than she would have come out with if she had sold several years ago. No question. What do you think Bob Backish's legacy will be? I think Bob's legacy will be that he was a loyal soldier until the end when he wasn't sure it was the right thing to do. And he clashed with his controlling shareholder, which is something that can happen to any company that is owned by someone else. He clashed with his owner. And what about Sherry Redstone's legacy?

I think Sherry's legacy still remains to be seen. I think it's going to be played out the next few weeks. I mean, her family and Paramount have lost billions of dollars over the years for decisions that she's made, that Bob has made. There have been a lot of missteps here. And for factors that no one can control. So I think it kind of depends how this ends.

We haven't seen the last chapter yet. We don't know if this ship is going to sink. That's all for today, Wednesday, May 1st. The Journal is a co-production of Spotify and The Wall Street Journal. Additional reporting in this episode by Joe Flint and Amol Sharma. Thanks for listening. See you tomorrow.