Paramount Global (NASDAQ: PARA), a leading media and entertainment giant in the United States, emerged in 2019 from the merger of Viacom and CBS. Primarily controlled by National Amusements, Inc., which holds a substantial portion of the voting and non-voting shares, Paramount has recently been in the spotlight of the market.
The company's shares are currently trading 64% below book value, despite analysts' expectations for earnings growth in 2024 and 2025, making it a potentially undervalued investment.
A significant development is the proposed merger with Skydance Media, which aims to alleviate Paramount's significant debt burden and improve its financial stability. This merger is expected to generate synergistic benefits, increasing Paramount's revenues and earnings per share (EPS) in the coming years.
Paramount stock is currently considered a “BUY,” valued at at least $25.00 per share, which is $10.00 more than Skydance is offering, reflecting the company’s strong brand, management capability, and promising future cash flow prospects.
Merger Insights: Skydance Media and Paramount Global
There is considerable interest surrounding various divisions of Paramount Global, with notable deals coming in for its assets, such as Apollo's $11.0 billion bid for Hollywood Studios. Meanwhile, Paramount as a whole is valued at $7.2 billion on the market.
After lengthy negotiations, Paramount agreed to merge with Skydance in July. The deal calls for Paramount to issue shares and receive a substantial investment from Skydance, aimed at strengthening its financial base. The deal also includes significant shareholder dilution, but promises to increase shareholder value through strategic synergies and reduced leverage.
Financial projections and market position
Projected EPS for 2024 and 2025 suggest Paramount will trade at an attractive single-digit P/E multiple, with EBIT multiples also looking favorable. The company's sizable debt is manageable with major repayments scheduled after 2029, providing a cushion for strategic financial maneuvers in the interim.
Market evaluation and comparison
A detailed DCF valuation indicates that Paramount's market price is significantly discounted to its intrinsic value, estimated at $34.37 per share based on future cash flows. Even when compared to industry peers, Paramount trades at a conservative multiple, suggesting substantial room for price appreciation.
Risks and considerations
While the Skydance merger introduces potential financial restructuring benefits, it also comes with risks, including a hefty breakup fee and regulatory hurdles. Paramount’s balance sheet is riddled with intangible assets, which could negatively impact its tangible book value.
