National Amusements stops discussions with Skydance on Paramount deal, sources say

National Amusements has stopped talks with Skydance on a proposed merger with Paramount Global, ending months of deal discussions without a transaction.

National Amusements, which is owned by Shari Redstone, the controlling shareholder of Paramount, had previously agreed to economic terms on a merger with a consortium that includes David Ellison’s Skydance, and private equity firms RedBird Capital and KKR. The deal had been awaiting signoff from Redstone, CNBC previously reported. National Amusements, which Redstone controls, owns 77% of class A Paramount shares.

Paramount shares closed nearly 8% lower Tuesday following the report.

National Amusements said in a statement on Tuesday it has “not been able to reach mutually acceptable terms regarding the potential transaction with Skydance Media for the acquisition of a controlling stake in NAI.”

“NAI is grateful to Skydance for their months of work in pursuing this potential transaction and looks forward to the ongoing, successful production collaboration between Paramount and Skydance,” the statement said.

Redstone’s company said it “supports the recently announced strategic plan being executed by Paramount’s Office of the CEO as well as their ongoing work and that of the Company’s Board of Directors to continue to explore opportunities to drive value creation for all Paramount shareholders.”

Paramount declined to comment. Spokespeople for Skydance and Redbird did not immediately respond to requests for comment.

The Wall Street Journal earlier reported talks had ended.

“While National Amusements had agreed to the economic terms that Skydance offered, there were other outstanding terms on which they could not come to agreement,” a NAI spokesperson said.

There’s been a disconnect on why the discussions didn’t amount to a deal, according to people familiar with the matter, showcasing the nature of the process that has gone on for months with various twists and turns.

Redstone and the special committee had asked for a so-called majority of the minority vote as part of the deal, a clause the Skydance bidding consortium found unacceptable and impracticable to add after deal talks had long started, according to people familiar with the matter. The special committee’s approval process, meant to determine the deal’s fairness, negated the need for such a vote, according to those familiar with Ellison’s thinking.

The Skydance bidding consortium instead blamed Redstone’s inability to let go of a family asset, her desire for more money for NAI, and private comments critical of David Ellison from Paramount board member Charles Phillips as likely reasons a deal collapsed, according to people familiar with the matter. A spokesperson for Phillips declined to comment.

The Special Committee of the Board of Directors of Paramount Global said, “The Special Committee met on Tuesday to discuss progress of discussions regarding a potential transaction with Skydance Media. At that time, the Special Committee was informed by a representative of National Amusements, Inc. that it did not have an agreement on a deal with Skydance Media and didn’t anticipate a path forward on this transaction. The Special Committee did not vote on any potential transaction.”

The about face on the proposed deal not only comes days after Skydance and Paramount agreed to merger terms, but also after Paramount’s annual shareholder meeting, where the company’s leadership outlined plans for the future.

Last week, Paramount’s current leadership, the so-called “Office of the CEO” — CBS CEO George Cheeks, Paramount Media Networks CEO Chris McCarthy and Paramount Pictures CEO Brian Robbins — mapped out the company’s strategic priorities in the event the company was not sold.

The shared leadership structure was put into place in late April, when former CEO Bob Bakish stepped down.

The trio outlined a plan that included exploring streaming joint venture opportunities with other media companies, eliminating $500 million in costs and divesting noncore assets. The plan that was presented to shareholders was Redstone’s alternative option if she chose not to sell.

While Redstone noted during the beginning of the shareholder presentation the unorthodox structure of the leadership team, she voiced her support. She has approved of their ideas and leadership during their short tenure, CNBC previously reported.

Redstone has controlled the future of Paramount and whether a sale would take place. She can now consider other offers for National Amusements from outside buyers.

In May, another potential buyer for Paramount surfaced — Apollo Global Management and Sony, which formally expressed interest in acquiring the company for $26 billion, CNBC previously reported. However, Redstone favored a deal that would keep the company together, and Apollo and Sony planned to break up Paramount, separating its movie studio from other parts of the business including its broadcast network, CNBC previously reported.

Under those terms, which were still being ironed out up until Tuesday, Redstone would have received $2 billion in cash for National Amusements, CNBC reported. Skydance would buy nearly 50% of class B Paramount shares at $15 apiece, or $4.5 billion, leaving the holders with equity in the new company. Skydance and RedBird would have also contributed $1.5 billion in cash to help reduce Paramount’s debt.

The plan outlined by Paramount’s three leaders last week emphasized the reduction of debt and getting the company back to an investment-grade rating after it was lowered to junk status earlier this year. Paramount had roughly $14.6 billion in long-term debt as of March 31.