Wall Street Underwhelmed by Paramount-Skydance Post-Merger Economic Forecasts
July 9, 2024
The day after Paramount Global’s $8 billion merger agreement that will see Skydance Media become the new owner of the media giant’s Paramount Pictures, CBS, Nickelodeon, MTV, Comedy Central, BET, Paramount+ and Pluto TV streaming assets, Wall Street remains largely unimpressed.
With pending CEO (current Skydance Media boss) David Ellison wanting to transition Paramount Global into a hybrid technology-media company while also slashing millions in operating costs, investor firm Wolfe Research reacted to the news by downgrading the company’s stock to “underperform” from “peer perform.”
“With a breakup of the company off the table, the investment debate simplifies: can Paramount invest profitably in DTC? Are forecasts low enough? Respectively, we are cautious and negative,” analyst Peter Supino wrote in a July 9 note.
Supino is not confident Paramount can generate $2.4 billion in projected pre-tax operating profit in 2025 and 2026, despite Ellison’s plan to cut $500 million in operating costs. The analyst also soured on Ellison’s plans not to split up Paramount Global’s media assets, and the company board’s decision not to further entertain Sony Pictures/Apollo Capital’s $26 billion offer.
“We are concerned about Skydance’s [fiscal] assumptions,” Supino wrote.
Separately, Wells Fargo and UBS retained “sell” guidance on Paramount’s stock, arguing that previous media mergers involving Disney and Warner Bros. Discovery failed to generate higher Wall Street estimates despite management cutting billions in overhead costs.
“Investors have been hurt before,” Wells Fargo wrote.
On the flipside, Morgan Stanley believes the merger would help combat Paramount’s declining linear TV business by selling assets, injecting $1.5 billion of new equity into the company, and cutting $2 billion operating costs.
“The Skydance transaction brings new ownership, more capital, new verticals, and a focus on tech,” wrote Morgan Stanley.
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