(Bloomberg) -- Paramount Global Chair Shari Redstone walked away from a deal to sell her family’s media empire to independent producer David Ellison, but she’ll have to agree to an offer from someone eventually, because keeping the status quo isn’t an option.

The heiress rejected Ellison’s latest proposal on Tuesday after lengthy negotiations and a professed preference for the deal she believed would be in the best interests of her family and the company’s legacy. After months of resistance from company management and shareholders that prompted Ellison to revise his offer, Redstone suddenly changed her mind. 

She’ll have to come up with an alternative pretty quickly, however, as the problems that have bedeviled Paramount for years won’t go away on their own. And the longer the situation festers, the more Paramount’s value evaporates.

“Controlling shareholder NAI has walked away from a strategic deal that we believe would have improved Paramount’s outlook,” said Steven Cahall, an analyst at Wells Fargo Securities, in a note to investors. Since taking effective control of Paramount, “we think Ms. Redstone has created a legacy of equity value destruction.”

Laden with more than $14 billion in debt, Paramount has struggled to compete in streaming and has suffered as cable TV audiences canceled their subscriptions and abandoned traditional channels like CBS and Nickelodeon. Its namesake Hollywood studio, home to films such as The Godfather and Forrest Gump, has struggled to make money.

The Redstone family holding company, National Amusements Inc., has nearly $200 million in debt and lacks the cash to repay what’s owed in May, according to S&P Global Inc. Down the road, the family has estate taxes due after the passing of patriarch Sumner Redstone in 2020.

National Amusements, which owns 77% of the voting stock of Paramount, could still sell assets, such as some of its Paramount shares. But that is unpalatable based on current prices. The stock fell almost 8% on Tuesday after news of the abandoned Skydance offer and was down 1.6% on Wednesday. At about $10.82 a share, it’s now trading at a fraction of its 2017 high of $69.36.

After reviewing Ellison’s proposal in May, a special committee of directors recommended that Paramount not continue as a standalone business, according to people familiar with the decision.

Ellison, the son of Oracle Corp. co-founder Larry Ellison, changed the terms of his initial offer in an effort to appease not only the Redstones but also Paramount shareholders. He threw in more money for shareholders and cash to pay down debt, and also offered to help cover potential legal costs.

But Redstone had her own concerns about continuing with Ellison, according to a person familiar with her thinking. For example, she found Skydance too restrictive in detailing how it would run the new company once they merged with Paramount and assumed control, the person said, asking not to be identified revealing confidential information. She also came to doubt whether Skydance would in fact sell bits of Paramount’s assets, after promising Redstone they wouldn’t break the company up. 

And Redstone had been keen to present the deal to a vote by minority investors, something Skydance opposed. Finally, even for someone whose messy family history has played out in public, she didn’t like how she was being presented in the press by the Skydance side, the person said.

Frustration Mounts

Investors have grown frustrated with the drawn-out sale process, which has weighed further on the stock and has limited visibility about the company’s future. 

“This will add to the long shadow over Paramount as yet another misstep,” Cahall said. “The last six months have seen governance weakened, the CEO fired in favor of management by committee, likely internal disruption to rank-and-file morale, massive golden parachutes and probably a lot of deal-related expenses.”

Paramount’s trio of co-chief executive officers has its own plan for going forward, including $500 million in cost cuts and an ongoing search for a streaming partner, but there’s no guarantee they’ll have any more success than the company’s previous CEO, Bob Bakish, who stepped down in April.

There are other bidders waiting in the wings, including Apollo Global Management Inc., Seagram’s heir Edgar Bronfman and independent film producer Steven Paul. But right now none of Redstone’s options seems like a clear winner.

At least one analyst has a dream scenario. Loop Capital’s Alan Gould said the “deal with the most industrial logic” would be a merger with Warner Bros. Discovery Inc., which hasn’t been proposed. That would create “a TV production powerhouse, a more profitable combined studio, and providing WBD with a broadcast network,” the analyst said in a note to investors. “However, that deal certainly could not be done under the current administration, and would likely require a steep decline” in Paramount shares to be palatable to Warner Bros. shareholders.

--With assistance from Brandon Mioduszewski.

(Updates with analyst comments and shares.)

©2024 Bloomberg L.P.