Bottom line: Wanda Group is making an aggressive bid to be selected for a $1 billion strategic investment in Paramount, but the bid is likely to fail due to objections by the studio’s controlling shareholder.
New comments from China’s richest man indicate he is aggressively bidding for a stake in leading US film studio Paramount, which was put up for sale earlier this year as its parent sought to find a strategic investor. But separate reports last week show that such a deal could face difficulty due to objections by Sumner Redstone, who controls Paramount parent Viacom (Nasdaq: VIAB).
Redstone and Viacom’s current CEO Philippe Dauman have been locked in a battle for control of the company, but a resolution of that feud now appears to be close. Unfortunately for Wanda, that resolution would see a departure from Viacom by Dauman, the main proponent of the Paramount stake sale plan. That would leave Redstone, who was cool on such a plan, with the final rights to approve or veto a stake sale.
We’ll return to the internal fighting at Viacom shortly, but first let’s look at the latest comments from Wanda chief Wang Jianlin that hint at a bid for the strategic stake in one of Hollywood’s leading studios. In an interview, Wang says that his company is aiming to seal two separate $1 billion deals in the entertainment sector as part of his drive to diversify his company beyond its traditional real estate roots. (English article)
One of those deals probably refers to Wanda’s ongoing bid for US cinema operator Carmike (Nasdaq: CKEC), which was launched earlier this year but has run into resistance from shareholders who say the offer price is too low. (previous post) The other would be for Paramount, and previous media reports have indicated Wanda is pursuing such a deal.
Wang says in the latest interview he would be interested in Paramount, but was quick to add that he would also be interested in any of Hollywood’s other major studios. None of those besides Paramount has been publicly announced as being up for sale, which makes Paramount look like the most likely candidate.
Viacom CEO Dauman said back in February he would like to sell a strategic stake in Paramount, prompting many to speculate that a Chinese buyer would be the most logical choice due to the nation’s booming box office. (previous post) Analysts said at the time that Paramount was probably worth about $10 billion, meaning a strategic 5-10 percent stake in the studio would probably cost around $1 billion.
Thus at least one of the $1 billion deals that Wang has mentioned looks almost certain to be aimed at a Paramount bid. He’s likely to face competition from e-commerce giant Alibaba (NYSE: BABA), which is also aggressively moving into Hollywood and film production through its Alibaba Pictures (NYSE: 1060) unit.
But anyone hoping to buy into Paramount may soon face some headwinds due to the separate battle for control of Viacom, which appears to be close to resolution. According to reports last week, the 2 feuding sides were close to a deal that would see Dauman leave Viacom and be replaced by the company’s current COO. (English article) As part of the deal, Dauman would still be able to choose a potential strategic investor for Paramount, and then present such a plan to the company’s management.
But the same report points out that Redstone was opposed to the plan to sell a stake in Paramount from the start, meaning he could very well veto any proposal made by Dauman. Of course it’s always possible that others at Viacom could convince Redstone of the logic of selling such a stake, since Wanda or Alibaba would both be potent partners in helping Paramount tap the Chinese film market.
At the end of the day, I would give Wanda the best chance of being selected by Dauman as the preferred potential investor. But I would add that such a deal would only stand a 20 percent chance of getting completed due to Redstone’s objections.
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