Paramount flops in the last hour of trading!

Paramount Global (Nasdaq:PARA) whipsawed Tuesday, as a mildly positive day turned into a nightmarish hour of near-panic selling before the closing bell. The entertainment conglomerate closed down 7.9% to end the day at $11.04. It had been as high as $12.38 in the 2 p.m. hour.

Daily volume was 3.2 million shares, of which two-thirds traded after 3. After-hours trading, at deadline, has barely moved the stock price.

The market reacted to a Wall Street Journal report that controlling shareholder Shari Redstone rebuffed Skydance Media’s offer to buy her media empire. She reportedly walked away from a $1.7 billion cash offer to buy her National Amusements, Inc., the privately held cinema chain through which she owns her Paramount stake. That was part of an estimated $8 billion total deal, according to Fast Company. This would have been a modest premium over the market cap in early April, before negotiations started.

Separately, but perhaps in anticipation of the deal breaking down, Paramount had just yesterday notified the Securities and Exchange Commission about new details of a severance plan for co-CEOs George Cheeks, Chris McCarthy and Brian Robbins. They were basically temps from the get-go.

What’s streaming

In addition to controlling Paramount, NAI owns 1,500 movie theaters throughout the U.S., U.K. and Latin America. It has a lock on the class of Paramount common stock that holds all the voting rights.

Paramount, which also has a number of international units, is the result of the 2019 reunification of CBS Corp. and Viacom. It owns, among other properties, the famed Paramount Pictures studio, as well as an entertainment group that includes the CBS broadcasting network, MTV, Comedy Central, BET and Nickelodeon. This TV Media segment accounts for two-thirds of Paramount’s $30 billion per year revenues, and its shows get a second life on the related Paramount+ streaming channel, which along with other direct-to-consumer services accounts for 22% of revenues.

Which brings us to the Filmed Entertainment division and its 10% revenue contribution. Middling hits like 2024’s /i/IF/i/ and /i/Bob Marley: One Love/i/ are fine, but some wonder if this once prestigious studio has another blockbuster on its lot.

After disappointing first-quarter earnings expressed as free operating cash flow, S&P Global lowered Paramount’s bond rating to BB+, or one notch above junk-bond status. In its report, the rating agency barely mentioned the film unit, focusing on “ongoing deterioration of the linear television ecosystem and the elevated investments for its direct-to-consumer (DTC) streaming model.”

This has led to a balance sheet that’s almost 4x leveraged and FOCF that covers only 5% of total debt.

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Paramount faces a dire situation, but all is not lost. First, consider the price-to-earnings ratio. Since it operated at a loss in 2023, the trailing-twelve-month figure is negative. The forward-looking number, though is 10.2x. That’s little more than one-third of the Radio & TV Broadcasting industry’s, the Consumer Discretionary sector’s or the S&P 500’s.

And let’s not forget that Skydance wasn’t the only suitor. Sony, backed by Apollo Global Management, expressed interest. Warner Bros. Discovery is in the running. And late to the game, a partnership of Bain Capital and billionaire Edgar Bronfman, Jr., has emerged as a contender.

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William Freedman

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William Freedman, MBA, is a New York-based financial writer and former Wall Street stock analyst. He volunteers his time as a trained leader with Scouting USA.