Regulatory hurdles loom over Sony-Apollo's Paramount bid
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Sony Pictures' $26 billion cash bid with Apollo for Paramount Global is the highest offer on the table at the moment, but it comes with a range of regulatory hurdles the duo will have to jump.
Why it matters: The Sony-Apollo road to full clearance for any kind of agreement could potentially weigh on the offer and either push Paramount back into the arms of Skydance Media or down another path.
Catch up quick: Paramount — owner of CBS, Nickelodeon, MTV, Comedy Central and its namesake movie studio — is up for sale.
- Shari Redstone, who runs National Amusements, the holding company that controls Paramount, has just ended exclusive deal talks with Skydance. Sony-Apollo are swooping in with its offer, though talks with Skydance are expected to continue.
- Redstone has made it clear she prefers the Skydance camp over Sony-Apollo, thanks in part because it's expected to keep Paramount intact. Some Paramount shareholders have made it clear that they think a Skydance sale will leave them in the dust.
Zoom in: For the Sony-Apollo offer, the main issues appear to hover around a list of required regulatory clearances, which include:
1. CFIUS approval: Given that Sony is Japan-based and would have majority control of the combined company, the deal would need to get approval from the Committee on Foreign Investment in the United States (CFIUS).
2. Broadcast license: The Federal Communications Commission (FCC) would need to approve the broadcast license for CBS, a process that could pose a problem for a Japan-based company, and a private equity owner.
- There is recent precedent with Televisa's Univision merger for waivers granted to foreign owners. But "we have entered a new, more protectionist era," says Andrew Schwartzman, senior counselor at Benton Institute for Broadband & Society.
3. Studio consolidation: The Justice Department could argue that a Sony-Apollo takeover of Paramount would be a so-called "5-to-4" merger since it would result in only four major studios, Seth Bloom, a former general counsel of the U.S. Senate Antitrust Subcommittee, told Axios.
- "To convince the current DOJ to let this go through, I think, would be the number one hurdle," he added, although he conceded that new entrants into streaming, like tech firms, could dampen that argument.
4. Local station overlap: Apollo owns several local TV stations via its 2019 deal with Cox Media Group that would overlap in some markets with some of CBS' local stations, including Boston and Pittsburgh.
- The FCC requires that one company can't own more than one station ranked among the top four-rated stations in a market based on audience share.
5. National ownership cap: The FCC stipulates that one entity can't own stations that reach more than 39% of all U.S. households, so Sony-Apollo may have to seek divestitures to address that.
What they're saying: Apollo CEO Marc Rowan told CNBC on Monday that "the limits and the laws are pretty straightforward" in terms of Sony and Paramount's overlapping studio businesses and Apollo's existing ownership of local TV stations.
Yes, but: President Biden's antitrust regime, under the Department of Justice and the Federal Trade Commission, has taken a tough stance against a range of acquisitions over the past few years.
- The agencies could probe whether Sony acquiring Paramount would harm competition within the entertainment industry, and how it would impact workers.
- "DOJ will want to know how that affects what consumers pay and how it affects union jobs," said Cowen analyst Paul Gallant.
Disclosure: Axios is owned by Cox Enterprises, which holds a minority stake in Cox Media Group.
