Sony and Apollo in talks to acquire Paramount

Paramount has decided to formally open negotiations with a bidding group led by Sony Pictures Entertainment and the private equity giant Apollo, according to three people familiar with the matter. The move comes after a period of exclusive talks with the Hollywood studio Skydance lapsed Friday night.

A special committee of Paramount’s board of directors met Saturday and signed off on beginning deal talks with Sony and Apollo, which last week submitted a nonbinding letter of interest offering to buy the company for about $26 billion in cash, the people said. The committee also decided to push for further negotiations with Skydance, a studio founded by technology scion David Ellison.

Paramount, owner of Nickelodeon, MTV, CBS and Paramount Pictures, has been exploring a deal as it faces industrywide headwinds, including the decline of cable TV and the unprofitability of its streaming business.

Any deal between the Sony group and Paramount faces hurdles. Government regulations restrict foreign ownership of broadcast networks and could prevent Sony’s parent company, based in Japan, from owning CBS outright. The bidding group would probably push for Apollo, which is based in the United States, to hold the rights to the CBS broadcast license, according to two people familiar with their strategy.

It also remains to be seen whether National Amusements, Paramount’s parent company, will support the Sony-Apollo bid. National Amusements has the power to veto any deal, giving the new bidders an extra incentive to secure its approval, although National Amusements has committed to supporting the special committee’s decision.

Sony and Apollo’s all-cash offer has been supported by many shareholders as an alternate to a merger with Skydance. Late last year, Shari Redstone, who controls National Amusements, signed off on a potential deal to sell her stake to Skydance, but that deal hinges on a related transaction for Skydance to merge with Paramount. The deal stalled last week after the two sides were unable to reach an agreement after a month of exclusive negotiations.

Under the terms currently being contemplated in the Sony-Apollo tie-up, Sony would be a controlling shareholder, with Apollo owning a minority stake, according to the two people familiar with the bidders’ strategy. Sony executives have discussed operating the Paramount studio as a division of their larger empire, uniting the studios behind the “Spider Man” and “Mission: Impossible” franchises and combining their theatrical marketing and distribution operations.