Shares of mass media enterprise Paramount Global (NASDAQ:PARA) popped sharply higher on Friday due to unconfirmed rumors that content production company Skydance Media may be considering acquiring its assets. Initially, PARA stock jumped 12% before adding to those gains in the early afternoon session.
As a well-funded enterprise that operates under a different segment of the broad entertainment umbrella, Skydance is less likely to run into regulatory roadblocks, according to a Seeking Alpha report. In addition, what makes the speculated deal intriguing is that Skydance already partners with Paramount on blockbuster Tom Cruise projects. These include the Mission: Impossible franchise and Jack Reacher film and television adaptations.
To be sure, Matthew Belloni of Puck, who reported on the rumor, stated that the process is in the very early stages. “There’s no official process or dealbook, but NDAs [non-disclosure agreements] have been signed, and a small group is said to be working up the numbers,” wrote the journalist.
In addition, if a buyout occurs, it could materialize in multiple ways. One possible avenue involves Skydance and RedBird Capital buying a majority stake in Paramount parent National Amusements. As a Deadline report mentioned, the Norwood, Massachusetts-based exhibitor owns 77% of Class A shares of PARA stock.
Thus, a Trojan horse vulnerability exists that brings intrigue to the rumor.
Stakeholders of PARA Stock Need Something to Happen
Adding further weight to the buyout speculation is the harsh reality that PARA stock has — save for some brief moments — badly underperformed stakeholders’ expectations. Since the start of this year, shares have only barely popped their head above parity, including the Friday pop.
Over the past five years, PARA stock tumbled more than 64%, according to data from Google Finance. And since its public market debut in 1990, the security has only returned 79% for shareholders. Therefore, it’s likely that longtime investors will greet this rumored acquisition warmly.
Indeed, Deadline notes that Paramount has been facing multiple headwinds, especially amid its efforts to compete in the streaming ecosystem. “Its traditional businesses, including broadcast and cable TV, have been in decline, and advertising in its TV Media division fell 14% in the third quarter compared with the prior year,” stated the media news agency.
To that end, if some deal is struck, RedBird and Skydance will probably not want to run Paramount’s KCBS-TV channel or its cable networks. Therefore, a likely scenario may be targeting the acquisition of Paramount’s intellectual property and Paramount Pictures — something that ownership of the company’s Class A voting shares would enable.
From there, Deadline states that it could attempt to piecemeal the divesture, offloading CBS, TV stations and package some of the cable channels.
Why It Matters
Not surprisingly, the analyst view of PARA stock is pensive as a consensus hold. This assessment breaks down as five buys, six holds and eight sells. Overall, the average price target lands at $14.41, implying more than 16% downside risk.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
