Sony and Apollo in Talks to Acquire Paramount

After letting exclusive talks with the movie studio Skydance lapse, Paramount?s directors met over the weekend and decided to negotiate with all the suitors.

Paramount has decided to formally open negotiations with a bidding group led by Sony Pictures Entertainment and the private equity giant Apollo, according to three people familiar with the matter. The move comes after a period of exclusive talks with the Hollywood studio Skydance lapsed on Friday night.

A special committee of Paramount?s board of directors met Saturday and signed off on beginning deal talks with Sony and Apollo, which last week submitted a nonbinding letter of interest offering to buy the company for around $26 billion in cash, the people said. The committee also decided to push for further negotiations with Skydance, a studio founded by the technology scion David Ellison.

Paramount, the owner of Nickelodeon, MTV, CBS and Paramount Pictures, has been exploring a deal as it faces industrywide headwinds, including the decline of cable TV and the unprofitability of its streaming business.

Any deal between the Sony group and Paramount faces hurdles. Government regulations restrict foreign ownership of broadcast networks and could prevent Sony?s parent company, based in Japan, from owning CBS outright. The bidding group would probably push for Apollo, which is based in the United States, to hold the rights to the CBS broadcast license, according to two people familiar with their strategy.

Government regulators have also aggressively evaluated acquisitions under President Biden, with the Department of Justice and the Federal Trade Commission moving to block a number of proposed deals. Not all of those moves by regulators have been successful.

It also remains to be seen whether National Amusements, Paramount?s parent company, will support the Sony-Apollo bid. National Amusements has the power to veto any deal, giving the new bidders an extra incentive to secure its approval, though National Amusements has committed to supporting the special committee?s decision.

Sony and Apollo?s all-cash offer has been supported by many shareholders as an alternate to a merger with Skydance. Late last year, Shari Redstone, who controls National Amusements, signed off on a potential deal to sell her stake to Skydance, but that deal hinges on a related transaction for Skydance to merge with Paramount. The deal stalled last week after the two sides were unable to reach an agreement after a month of exclusive negotiations. Shareholders were bearish on that deal, saying it would enrich Ms. Redstone at their expense.

Under the terms currently being contemplated in the Sony-Apollo tie-up, Sony would be a controlling shareholder, with Apollo owning a minority stake, according to the two people familiar with the bidders? strategy. Sony executives have discussed operating the Paramount studio as a division of their larger empire, uniting the studios behind the ?Spider Man? and ?Mission: Impossible? franchises and combining their theatrical marketing and distribution operations.

Though the finer points of the deal have yet to be detailed, Sony and Apollo have discussed putting Paramount ? which includes the Paramount+ streaming service and the CBS broadcast network ? into a joint venture, the two people said. One scenario under discussion is allowing Apollo to sell its minority stake back to Sony in a few years, allowing Sony to consolidate ownership of the company.

It is unclear what Skydance will do next. It sweetened its offer to Paramount last week, offering a $3 billion investment to buy back stock and pay down debt, but that extra incentive wasn?t enough to get the deal across the finish line. Skydance could still improve its bid, but one person familiar with the company?s strategy said it was unwilling to continue negotiating only to drive up the price for another suitor.

Paramount is still interested in a potential deal with Skydance and even offered to cover the company?s legal fees, one person familiar with the matter said.

It?s unclear how Sony and Paramount?s approaches to the entertainment business would mesh. Paramount has opted to follow Netflix into the business of selling directly to subscribers, signing up more than 71 million paying customers globally. Sony has eschewed its own streaming business and instead sells TV shows to entertainment conglomerates like Netflix and Disney

Paramount, meanwhile, is preparing for the possibility that both deals could fall apart. The company just replaced Bob Bakish, its chief executive, with an ?office of the C.E.O.? run by three division chiefs: Brian Robbins, chief executive of Paramount Pictures; Chris McCarthy, chief executive of Showtime and MTV Studios; and George Cheeks, the chief executive of CBS. They?re preparing to unveil a new long-term plan for the company.

The company is also considering a streaming joint venture with an array of potential partners including Comcast, which operates the Peacock streaming service, one of the people said.