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Viacom CEO Philippe Dauman acknowledged Tuesday that the conglomerate is seeking a minority investor in Paramount.
While Viacom paid $9.8 billion for the film and TV studio in 1994, analysts suggest it’s worth just $5.5 billion today, and only that much to a foreign investor willing to pay top dollar for a stake in a major U.S. studio.
Dauman’s desire for a “strategic” minority partner seems to suggest he isn’t interested in a private equity investor that would simply bring in cash and not much else.
“A Chinese partner has obvious benefits for any studio,” says Moody’s analyst Neil Begley, given the difficulty in getting distribution in the heavily regulated country that accounts for about 20 percent of the world’s population.
“As Paramount is a major studio, we could see an auction, with the winner providing the most strategically advantageous as well as lucrative offer,” says Begley.
One downside to selling off a portion of Paramount, says Vogel Capital Management CEO Hal Vogel, is that “it would severely complicate any potential future sale of the entire company.”
The company will not hold a broad process, instead keeping the discussions “limited,” Dauman said Tuesday.
The exec says a deal for a minority stake in Paramount should be struck by the third quarter of Viacom’s current fiscal year. Here’s a look at some of the top prospects:
The Chinese Internet and e-commerce giant has been looking for Hollywood deals ever since chairman Jack Ma visited Hollywood, and Alibaba is already familiar with Paramount as it was a partner on Mission: Impossible — Rogue Nation. Alibaba may have even foreshadowed a deeper relationship when it said the film was just its “first” Hollywood investment. In addition to an investment of an unspecified amount in the movie, Alibaba worked with Paramount in areas such as online ticketing, merchandising and promotion in China. Plus, big Viacom shareholder Mario Gabelli last year urged Paramount to discuss a deal with Alibaba that would make the latter a minority owner. “Transformers is a major phenomenon in China and could be monetized across consumer products and location-based entertainment … Alibaba may put the highest valuation on the studio,” says Ben Weiss, chief investment officer at 8th & Jackson Partners.
Dalian Wanda Group
The Chinese conglomerate already owns U.S. cinema chain AMC Entertainment and Legendary Entertainment, as well as a big theater circuit in China. Its billionaire chairman, Wang Jianlin, said in 2014 that his company had held talks to acquire a stake, preferably a controlling one, in Lionsgate, and that it also held discussions about investing in MGM, but deals for those never happened. Wanda, presumably, could bring as much to the table as Alibaba in terms of getting Paramount’s product into China.
Yet another Chinese conglomerate, Fosun is an investor in former Warner Bros. executive Jeff Robinov’s Studio 8 and it has an appetite for more. What it may not have, though, is cash. Fosun has been on a buying spree, including stakes in Cirque du Soleil and Club Mediterranee, the French parent company of the Club Med resorts. The heavily indebted Fosun also is part of a group trying to buy Bona Film Group, a U.S.-listed Chinese film company that would be taken private should the deal go through.
Amazon Prime, the online retailer’s combination free shipping/streaming video service, boasts an estimated 54 million subscribers and is suddenly a serious competitor against Netflix. Amazon Studios is developing feature films and TV shows for Prime, but a pipeline into Paramount would give it obvious advantages. “I could see Amazon having interest as a means of expanding the reach of Prime into motion pictures,” says Mark Rogers, CEO of BoardProspects.com.
This one might not qualify as a “minority” investment, per se, but several observers think it makes more sense to merge Paramount, home of Star Trek and Teenage Mutant Ninja Turtles, with Canada-based Lionsgate, home of The Hunger Games, Divergent and Orange is the New Black. If Paramount combines with Lionsgate, argues Weiss, the merged entity could benefit from Canada’s lower tax rate. Such a merger would also consolidate majority ownership of Epix, the joint venture TV channel of Viacom, Paramount, Lionsgate and MGM. After such a marriage, Epix could then gobble up entities like AMC and MGM.
The final Chinese company on this list, Tencent is China’s biggest Internet service portal. Tencent is obviously interested in expanding internationally into television, movies and old and new media of all kinds, as it has already struck partnerships with HBO, ESPN and even The Hollywood Reporter.
The giant new-media company behind iTunes, iPads and iPhones is also rapidly expanding its Apple TV initiative, and the company run by CEO Tim Cook has already been floated as a potential bidder for Time Warner, should that company be for sale, as is rumored. But if Apple is simply seeking more content for a future version of Apple TV, why pay more than $80 billion for all of Time Warner (the price it already turned down when offered by 21st Century Fox) when it could get a stake in Paramount for less than a 20th of that?
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