2023-06-22 09:18:27 ET
Following the report that Netflix ( NASDAQ: NFLX ) may have looked at buying some of Paramount Global's ( NASDAQ: PARA ) ( NASDAQ: PARAA ) studio assets, investment firm Wells Fargo called them a "rare gem" that could generate strong interest in a sale.
Analyst Steve Cahall, who has an underweight rating on Paramount Global's ( PARA ) ( PARAA ) shares, said Paramount Studios and CBS Studios could "garner significant M&A interest from streamers" but he isn't convinced the Bob Bakish-led company will sell.
"In 2016, the late Sumner Redstone was publicly opposed to selling a stake in the studio," Cahall wrote in an investor note. "Shari Redstone has moved to consolidate core assets and her most recent commentary has seemed add to [direct-to-consumer] conviction. Without a studio, [direct-to-consumer] is orphaned. We don't think streamers like NFLX have any interest in PARA in its entirety so we're suspect of an all-out takeout of PARA."
Cahall added that Paramount's ( PARA ) direct-to-consumer business is "misguided" and it should shut it down and put the studios up for sale. He pointed out that Amazon ( AMZN ) paid 8 times enterprise value-to-library sales for MGM and at 5 times, Paramount's studios are worth roughly $30B.
Cahall sees a break-up of Paramount ( PARA ) ( PARAA ) as "inevitable" and the question remains if it happens sooner than later, perhaps staving off some further value destruction from management.
Paramount ( PARA ) ( PARAA ) shares have fallen nearly 8% year-to-date, well below the 14% gain for the S&P 500.
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Paramount studio assets 'rare gem' that could be worth $30B in a sale: Wells Fargo