Apollo Global's reported interest in buying Paramount Global's (PARA) film and TV studio boosts the likelihood the entertainment giant will reach a deal for all or part of its assets, MoffettNathanson analysts said in a note. (Disclosure: Yahoo Finance is owned by Apollo Global Management.)
The Wall Street Journal reported that Apollo offered $11 billion for the company's studio, sending Paramount's stock up 12% on Wednesday.
MoffettNathanson analyst Robert Fishman said the development "helps swing that pendulum back in favor of a deal."
"Apollo’s studio bid presents a plus one bidder for what we would argue is one of the most valuable assets of the company," Fishman wrote in a note to clients late Wednesday. "This could help Paramount secure an increased price for the whole company if that is the preferred path without having to break up the company."
Paramount has long been viewed as a potential acquisition target. Production studio Skydance Media has reportedly discussed a two-step deal targeting Paramount's holding company, National Amusements.
But the stock price has lagged amid increased skepticism over the likelihood of a deal. Shares are currently down about 20% since the start of the year.
Paramount's studio serves as the engine behind top Hollywood hits including "Top Gun: Maverick" and "A Quiet Place," in addition to successful series like "Yellowstone."
Shari Redstone, who serves as the non-executive chairwoman of Paramount Global and president of National Amusements, will ultimately determine the company's fate. National Amusements owns approximately 10% of Paramount's equity capital value and maintains 77% of voting shares — valued at around $1 billion.
Redstone has been hesitant to break up the company, with Paramount's studio business viewed as its most attractive asset amid a declining linear television ecosystem.
"If Paramount would entertain stand-alone offers for just the studio, especially given its minimal cash flow generation, we think other strategic bidders could emerge and ultimately would go a long way towards helping the company pay down its debt and reduce leverage," Fishman said.
"Still, accepting a studio only offer would mean divorcing the rest of the company from one of the key engines that drives it," he continued. "Paramount is a company that creates content and distributes it in various ways. Remove one of its unique content creators from the equation and the rest of the company may appear hollow."
Given the company's current market cap of around $8 billion, in addition to $12 billion in net debt, Fishman estimated Apollo's $11 billion studio bid values the rest of the company between $11 billion and $12 billion.
Still, that valuation could be challenged amid uncertainty surrounding Paramount’s distribution negotiations with Charter, which are set to expire next month.
Ultimately, "there are still many permutations as to what [a Paramount deal] may look like — now we must wait to see which path Ms. Redstone and the company will pursue," the analyst concluded.
Paramount declined to comment on the report. Apollo did not immediately respond.
Alexandra Canal is a Senior Reporter at Yahoo Finance. Follow her on Twitter @allie_canal, LinkedIn, and email her at alexandra.canal@yahoofinance.com
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