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Sony Pictures Entertainment and private equity powerhouse Apollo Global Management have signalled their intent to acquire Paramount for approximately $26 billion.
According to a New York Times report on Wednesday, this move, revealed by sources familiar with the matter, adds further complexity to an already intricate deal-making process for Paramount.
The nonbinding expression of interest, conveyed in a letter this week, came at the time Paramount nears the Friday deadline for its exclusive negotiation period with Skydance, the Hollywood studio led by tech heir David Ellison.
Paramount and Skydance have been engaged in months of discussions surrounding a complex transaction involving a merger and capital injection from the private equity firm Redbird Capital Partners.
Under the new joint proposal, Sony would become the significant majority and controlling shareholder, with Apollo taking a minority stake.
This all-cash acquisition could appeal to Paramount shareholders opposed to the Skydance deal, which some feel primarily benefits the company's controlling shareholder, Shari Redstone, at the expense of others. Paramount has declined to offer a comment.
The proposed Sony-Paramount merger has the potential to create a Hollywood heavyweight, combining franchises like "Spider-Man" and "Mission: Impossible."
Sony executives have reportedly discussed managing the Paramount studio as a division within their broader media empire, integrating marketing and distribution capabilities.
As an international conglomerate known for its cutting-edge electronics, Sony might seem an unconventional suitor for Paramount.
Like Comcast, owner of NBCUniversal, Sony's highly profitable ventures outside traditional media - spanning video games, music, imaging, and sensors - provide insulation against the challenges facing the industry, such as the decline of theatrical releases and traditional cable television.
The letter, signed by Tony Vinciquerra (CEO of Sony Pictures Entertainment) and Aaron Sobel (Apollo Partner), marks the starting point for acquisition negotiations, according to a source familiar with the matter. Due diligence, yet to begin, could impact the final amount Sony and Apollo are willing to pay.
A crucial question for both Apollo and Sony concerns the future of Paramount's CBS broadcast network.
Regulations limit foreign ownership of broadcast networks, presenting a potential hurdle for Sony Pictures, a division of Japan's Sony Group Corporation.
However, the companies believe they can address these concerns, according to sources close to their plans.
Apollo, a U.S.-based firm, currently owns the Cox Media Group TV station group, a deal approved by the Federal Communications Commission (FCC), which regulates U.S. broadcasters.
The FCC did, however, block a separate Apollo-Standard General deal regarding the TV station group Tegna.
One possible solution under consideration involves Apollo, which has established government approval, holding the license for the CBS broadcast network, the sources say.
Whether a bid from Sony and Apollo would satisfy Ms. Redstone, whose controlling stake allows veto power over any deal, remains uncertain.
Ms Redstone has already agreed to potentially sell her controlling stake to Skydance, though that deal hinges on a separate Paramount agreement.
The interest from Apollo and Sony intensifies scrutiny on Paramount's board of directors' special committee, currently examining the company's options.
An all-cash alternative to the Skydance offer, which many shareholders support, could further complicate negotiations between Mr Ellison and Paramount.
These deal talks occur during a turbulent period for Paramount. Former CEO Bob Bakish, who had reservations about the Skydance deal, resigned this week amid tensions with Ms. Redstone.
Mr. Bakish played a central role in crafting the company's current strategy, focused on growing Paramount+ streaming subscriptions.
In his absence, Paramount's board has established an "office of the C.E.O.," comprised of a leadership trio: CBS CEO George Cheeks, Showtime and MTV Entertainment Studios CEO Chris McCarthy, and Paramount CEO Brian Robbins.
While boasting extensive company experience, their effectiveness in this three-way leadership position has yet to be proven.
