Byron Allen, entertainment mogul turned entrepreneur, has proposed to acquire 100% of Paramount Global’s (NASDAQ:PARA) (NASDAQ:PARAA) outstanding Class A and Class B shares, offering $28.58 for each Class A share and $21.53 for each Class B share. Despite Allen’s $30 billion bid, including debt and equity, Paramount Global faces obstacles in securing a deal.
As of September 30, Paramount Global holds $16.97 billion in total debt, with cash and short-term investments amounting to $1.80 billion, resulting in a net debt of $15.17 billion. This debt constitutes 28% of its total assets and 166% of its market capitalization. In comparison, Walt Disney’s net debt is 18% of total assets and 21% of market capitalization.
The primary concern for Paramount Global is not just its debt but also its cash flow and profitability. With an EBITDA margin of 7.8% for the trailing 12 months ending September 30, Paramount lags significantly behind Disney, which boasts a 16.5% EBITDA margin.
While Byron Allen’s $30 billion offer represents a substantial premium, the market appears skeptical about its feasibility. The Class B shares are trading 30% below Allen’s proposed price, indicating doubts about the deal’s potential success.
Paramount Global’s substantial debt has raised concerns about its ability to handle additional financing. Allen, claiming to have the necessary financial backing, intends to contribute 40% equity to the buyout and borrow the remaining 60%, resulting in an additional $8.6 billion in debt. This move would increase annual interest expenses by 50%, potentially surpassing the company’s operating income.
Despite Allen’s plans to sell Paramount’s studios, real estate, and intellectual property, concerns persist about the debt load. Wells Fargo estimated that the studios alone could fetch $19 billion in an auction, easing some worries about post-acquisition financials.
The real obstacle to a deal lies with Shari Redstone, Paramount Global’s chair and president of National Amusements, which controls 77% of the company’s voting shares. Redstone, expressing a desire to sell, holds the key to Paramount’s fate. The company’s deteriorating financials and Redstone’s preference to exit add complexity to the situation.
In conclusion, while debt is a notable concern, the potential sale of Paramount Global faces uncertainties primarily driven by the company’s cash flow, profitability, and the decisive role of Shari Redstone in determining the family’s exit from the media conglomerate.
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