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PSW Top Trade Alert – April 8, 2024 – Paramount (PARA)

It's been a while since we picked PARA but we've been discussing them in Chat today and Boaty's Meta-Summary is:  

 👺  Based on the latest news and discussions surrounding Paramount Global (PARA), it appears that the potential merger with Skydance Media is facing some challenges and raising concerns among shareholders. Here’s a summary of the key points:

1. Dilutive stock issuance: There are concerns that Paramount may end up overpaying for Skydance and issuing dilutive stock to finance the deal, which goes against shareholders’ interests.

2. Controlling shareholder’s influence: Shari Redstone, through her firm National Amusements (NAI), holds the majority of voting shares in Paramount. This means that the decision to pursue the Skydance deal largely rests with her, potentially overshadowing the interests of other shareholders.

3. Deal structure and valuation: According to the Wall Street Journal, the proposed deal involves NAI receiving over $2 billion in cash for their stake, followed by Paramount acquiring Skydance in an all-stock deal valued at around $5 billion. However, there are questions about the valuation of Redstone’s stake and how many shares would be issued to Skydance.

4. Fairness to different share classes: Paramount has two classes of shares (PARAA and PARA), and there are concerns about ensuring fair treatment for both classes in the deal. If one class is treated more favorably than the other, it could lead to litigation risks.

5. Short-term stock impact: Given the uncertainties surrounding the deal and the potential for dilution, some investors are considering selling short calls on PARA stock to hedge against potential downside risks.

Speculation and Analysis:

– If the deal goes through as reported, with Redstone receiving $2 billion for her entire stake, it could imply a valuation of over $30 per share for both PARAA and PARA. However, this assumes equal treatment of both share classes, which remains uncertain.

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