Paramount (PARA) June 2024 Valuation Model and Risk Framework

This Paramount (PARA) valuation model includes a Sum-of-the-Parts (SOTP), detailed operating model, historical financials, projections, and segment build. Assumptions can easily be adjusted by the user.

This company has received multiple bids from Skydance and Sony-Apollo for ~$19/share (Class B) and announced a $500 million cost cutting plan in June 2024.

Once you have downloaded the model, e-mail us for the associated memo for 2024.

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Short Summary of Setup:

Business Overview: Paramount (PARA) is a media company that produces and distributes entertainment content through movie studios, networks, streaming services, live events, and merchandise. Renamed from ViacomCBS in 2022, the company owns several TV media and cable properties, including CBS Television, MTV, Nickelodeon, Comedy Central, BET, Showtime, Paramount+, Pluto TV, Paramount Studios, and other assets. The company sold Simon and Schuster for $1.62 billion in 2023 to KKR and could sell BET next to raise cash.

Challenges & Opportunities: Paramount faces some challenges around lack of leadership, leverage, and a lackluster box office. Advertising revenues are also sensitive to economic cycles. On the positive side, the business can cut $7 billion in SG&A (up from $5 billion in 2020) and raise subscription prices on ~71 million subscribers. Revenue growth should be relatively flat for the overall business going forward, with offsetting factors in the model attached.

Segments: Paramount operates under three segments (Ops tab of model): the TV Media Segment (~68% of sales), the Direct-to-Consumer (DTC) / Streaming Segment (~23% of sales), and the Filmed Entertainment Segment (~10% of sales).

Setup: While the company is exposed to the advertising cycle (economically sensitive), Paramount (PARA) has had multiple bidders this year, and has started to enact a $500 million cost-cutting plan to increase free cash flow as of June 2024. Last month, the business received its highest all cash bid from Sony-Apollo that implied $19-20/share in value for Class B shares (non-voting).

Given anti-trust risk, control owner Shari Redstone rejected the Sony-Apollo offer, and also rejected an offer from Skydance that reduced her compensation vs. B shares at the last minute. Shari, who owns a majority stake in voting shares, has made it very difficult for Class B shareholders to garner a fair value for their economic interest. She has also stated that she prefers a U.S. buyer in negotiations.

Redstone has historically used her father's Paramount stock dividends to pay to cover losses at National Amusements' movie theater chains and to fund her personal lifestyle. With a sharply reduced dividend, Shari is a motivated seller, and she likely needs to pay inheritance taxes of ~$200 million that are accruing interest as well. Also, after ousting her star CEO, Bob Bakish for pursuing other bids, Shari is better off realizing value for her stake sooner, rather than later.

We have valued the segments of the business and describe three cases in the model and memo, with a detailed sum-of-the-parts analysis and operating model with cost savings built in.

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