Entertainment company Paramount Global's troubles continue to pile up with rumors that its assets could be sold.
Despite a report by Business Insider that said streaming giant Netflix considered buying the company's studio assets, it is not likely a sale or a breakup of its assets would occur, said Steven Cahall, an equity analyst for Wells Fargo Securities, in a research report.
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A purchase by Netflix would give the company valuable assets such as Paramount's library, its studio lot in Los Angeles and its numerous in-production TV series and films.
A sale of Paramount Studios and CBS Studio would likely receive bids from several streaming giants, he wrote.
"We've always viewed Paramount Studios (and PARA's CBS Studio) as a rare gem that, if put up for sale, could garner significant M&A interest from streamers; however, we're not convinced PARA would break-up and sell," Cahall said.
Paramount's streaming business is "misguided" and instead the company should shut down that business and sell the studios to the highest bidder, he said.
Since Amazon paid $8.5 billion for MGM's film and television studio, Paramount's Studios are worth about $30 billion, Cahall estimates.
"At 5x EV/Licensing for Paramount Studios (since we're now in higher cost of capital times) PARA's studios are worth ~$30bn, i.e. upside to the current stock price after accounting for debt. TVM and DTC would then be unwound/sold at deep discounts, but it's value-creating," he said.
The issue is that without a studio, Paramount's streaming business is "orphaned," Cahall said. Shari Redstone, who serves as nonexecutive chair of Paramount, has sought to "consolidate core assets and her most recent commentary has seemed add to DTC conviction," he wrote.
Since companies like Netflix are not likely to acquire Paramount's entire business, selling the company outright does not appear to be on the table currently, which is why Wells Fargo has an underweight rating with a target price of $11 a share.
The bull case is that Paramount is either sold or its asset are sold separately, Cahall said.
Paramount could continue making investments, but that money will be wasted since the company will be forced to sell in the future.
"The bear case is actually only modestly different: good money will be thrown after bad for another 1-2 years before the break-up becomes inevitable," he said.
Investors Remain Unhappy
Investors have grown impatient as Paramount has struggled over the past year. Shares of Paramount, which changed its name from ViacomCBS in 2022, have fallen by 9.37% year-to-date and by 7.11% during the past six months.
The stock received a slight reprieve over the past month, rising slightly by 3.7%.
Paramount, which owns the Paramount CBS, Showtime, MTV and Comedy Central brands, has been facing hurdles for awhile despite its hits with movies like "Top Gun: Maverick" and "Yellowstone." Advertising revenue has been slumping while competition has been heating up.
Shares of the company fell by over 28% on one day last November after it reported weaker-than-expected expected first quarter earnings while cutting its dividend by nearly 80% in a move designed to save around $500 million a year.
Paramount hopes to have at least 100 million streaming subscribers by the end of 2024.
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