The merger between entertainment giant Paramount Skydance (PSKY) and Warner Bros. Discovery (WBD) is in the home stretch, though it faces some of its strongest critics yet: a handful of state governments that apparently think they noticed something several national governments overlooked. But despite this newfound resistance, Paramount is still confident it will close the deal by September, a sentiment recently shared by Needham analysts. Investors did not share the sentiment, and sent Paramount shares sliding over 3.5% in the closing minutes of Tuesday’s trading.
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Paramount’s lead counsel, Jeffrey Kessler, recently noted that the lawsuit filed by a coterie of mostly blue state governments will likely fail to stop the merger. Led by California, and joined in by 11 other states including more “purple” state governments like Arizona and Nevada, the group filed suit seeking a temporary restraining order to hold the deal at bay for legal proceedings. Reports note that the restraining order would only pause the deal for 14 days, though the states can file for two temporary restraining orders before going to a preliminary injunction.
Kessler, however, was prepared to fight to the bitter end, planning to appeal to the Supreme Court itself if the deal runs into a “prolonged blockade,” reports note. Kessler himself noted, “The company believes strongly in this.” Kessler also pointed out the elephant in the room, noting, “Anybody who knows the entertainment industry knows it is in deep trouble,” due to the changing landscape, the rise of streaming, the near-collapse of physical media, and other factors.
Tax Planning
Meanwhile, Paramount CEO David Ellison recently came out in favor of a new federal film tax incentive, which has found bipartisan support, a point which is somewhat amazing in and of itself these days.
The tax credit would offer some help for content producers, particularly those who have been shooting content abroad to take advantage of lower costs and better exchange rates. A federal program would also give some support to standard United States filming locations like California, who, as noted previously, was fighting the merger over concerns of losing filming opportunities.
Is Paramount Stock a Good Buy Right Now?
Turning to Wall Street, analysts have a Hold consensus rating on PSKY stock based on one Buy, four Holds and three Sells assigned in the past three months, as indicated by the graphic below. After a 26.31% loss in its share price over the past year, the average PSKY price target of $11.33 per share implies 24.2% upside potential.
