Sony Pictures is teaming up with a private equity firm to buy Paramount Pictures

Sony Pictures is teaming up with private equity firm Apollo Global Management in an attempt to buy Paramount Pictures. They sent a letter to the firm expressing interest in acquiring the company for around $26 billion.

This comes as David Ellison’s Skydance Media, backed by private equity firms RedBird Capital and KKR, awaits word from Paramount’s special committee on whether controlling shareholder Shari Redstone has accepted its offer to acquire the company.

As of now, it’s up in the air. If for some reason the deal doesn’t move forward, Redstone could turn his attention to negotiating a deal with Sony and Apollo, which would give all common shareholders a premium on their shares.

The Wall Street Journal also reported that Paramount Global shares jumped more than 12% on news that Sony and Apollo submitted a letter formalizing their interest.

Redstone had already turned down an offer from Apollo in favor of working with Skydance since that deal would have kept Paramount together. It explains that a private equity firm “would likely tear the company apart through a series of divestments to extract value.”

But a $26 billion offer for Paramount Global is higher than the company’s current $22 billion value. It’s even more than what Skydance offers.

Skydance’s “best and final” offer included “merging its entertainment businesses with Paramount, raising $3 billion to buy out common shareholders at a premium of about 30% to an unchanged per-share price of 11 dollars, and paying Redstone nearly $2 billion for his controlling interest.”

The report explains that “the special committee would likely want to review financing details and obtain assurances that there are no regulatory challenges in the merger with Sony, a non-US entity. To do so, the special committee would have to inform the Skydance consortium that it wants to end its exclusive talks, which would likely distance Skydance as a bidder.

It will be interesting to see how this all plays out. It would be pretty crazy if Sony Pictures actually ended up buying Paramount Pictures.

It seems like Redstone would prefer to work with Skydance, but then they also have to think about what’s best for shareholders, and that would be the deal between Sony and Apollo.

Source: CNBC