👉 Background: Paramount Global is the media and entertainment behemoth that owns a heap of global entertainment brands and even Network Ten here in Australia. On the other hand, Skydance has produced a bunch of other Hollywood blockbusters, including Mission Impossible, and more. In 2023, the owners of Paramount expressed interest in selling the business.  

👉 What happened: This potential merger has been on and off since December 2023. But now, the $8 billion USD merger has been approved by the US Federal Communications Commission despite many hiccups along the way, like when Paramount was sued by Donald Trump.

👉 What else: In this $8 billion USD mega merger, there was actually no cash changing hands... because it was an all-stock merger.

What's the key learning?

💡An all-stock merger is when one company acquires another by offering shares instead of cash. In this case, the acquiring company, which is Skydance, pays for the deal using shares and they issue new stocks in exchange for control of Paramount. That means Paramount’s existing shareholders will end up owning a chunk of the new, combined company.

💡Companies do this because:

• It’s a lot cheaper because (ie there’s no need to borrow money for the acquisition)
• It aligns incentives because everyone now wants the new company to succeed
• It signals confidence because Skydance is betting that the future company will be worth more than the two were separately.  

💡But this is not a risk-free move. In 2022, Block acquired Afterpay, which was a $29 billion USD all-stock transaction. When the deal officially closed in January 2022, Block’s share price was around $108 USD per share. Now, Block’s shares are sitting around $80 USD per share. So if the newly merged company stumbles, the Skydance shares might not be so valuable anymore.