Paramount Global agrees to merge with Skydance Media

• It also ends months of chaotic deal talks.

Zoom in: The deal values the new company — for now being dubbed "New Paramount" — at roughly $28 billion and will follow a two-step process, the companies said.

• First, a Skydance investor group will invest $2.4 billion in cash to acquire Paramount Global's parent National Amusements and another $4.5 billion in cash and stock to pay Paramount Global's Class A and Class B shares. It will also invest $1.5 billion of primary capital to be added to Paramount's balance sheet.
• Then, Skydance will merge with Paramount in an all-stock transaction that values Skydance at $4.75 billion. Skydance equity holders will receive 317 million Class B Shares valued at $15 per share.
• The deal will require regulatory approval, which will take at least a few months.

Between the lines: The merger agreement includes a 45-day "go shop" provision, which means a superior bid remains possible.

• Paramount Global said in a statement that it "does not intend to disclose developments with respect to the go-shop process unless and until it determines such disclosure is appropriate or is otherwise required."

Follow the money: Skydance Media is funding the deal with help from Skydance investors including RedBird Capital Partners and KKR.

• Skydance CEO David Ellison, the son of Larry Ellison, will run the combined company as chairman and CEO, the firm said in a statement.
• Jeff Shell, formerly the CEO of NBCUniversal and currently a Redbird executive, will become President.

By the numbers: After the deal closes, the Skydance Investor Group will own 100% of New Paramount Class A Shares and 69% of outstanding Class B shares, or approximately 70% of the pro forma shares outstanding.

• In a statement, the companies noted that by continuing to own shares of the newly combined company, "Paramount Class B stockholders will have the opportunity to participate in New Paramount's long-term value creation potential."
• Billions of dollars in synergies are expected.

Catch up quick: Paramount's parent company National Amusements, which controls 77% of Paramount's voting power, began talking with Skydance about a deal last December.

• The parties entered exclusive merger discussions in April. After the window expired, other bidders signaled interest, but regulatory concerns left National Amusements with few viable alternatives.
• Redstone surprised the media world by abruptly walking away from Skydance earlier in June, but last week blessed a new offer.

Zoom out: The deal is a huge win for Ellison, who goes from Hollywood outsider to one of the industry's most influential executives.

• Paramount and Skydance already have worked together, co-producing films in the "Mission: Impossible," "Transformers," and "Terminator" franchises.
• Paramount Pictures, with credits like "The Godfather" and "Titanic," is one of the oldest surviving Hollywood studios, dating back to its founding in 1912 as the Famous Players Film Company.

The big picture: Redstone, who for years resisted merger interest, is striking this deal when Paramount is under massive pressure.

• Its market value was $8.3 billion as of Sunday evening, down from nearly $60 billion at the height of the COVID-19 pandemic, while its debt rating was cut to junk by S&P in late March.
• While Paramount+ has grown its subscriber base to 71 million globally, it's still well behind streaming leaders like Netflix and Disney and it loses hundreds of millions of dollars each quarter. Moreover, the industry-wide pivot to streaming has hurt Paramount's legacy cable business.
• "Given the changes in the industry, we want to fortify Paramount for the future while ensuring that content remains king," Redstone said in a statement. "Our hope is that the Skydance transaction will enable Paramount's continued success in this rapidly changing environment."

What to watch: Whether Class B shareholders like the deal.

• Leaked details of the early talks led some Paramount investors to push back against the Skydance bid, over fears that it would enrich Redstone at their expense. Skydance's subsequent offers were aimed at appeasing Class B shareholders.