Sony and Apollo are considering acquiring Paramount for $26 billion

Sony Pictures Entertainment and private equity giant Apollo Global Management have formally expressed interest in acquiring Paramount for about $26 billion, according to two people familiar with the matter, a move that adds drama to the already chaotic deal process.

The non-binding expression of interest, sent in a letter this week, comes as Paramount approaches an agreed-upon Friday deadline for the expiration of an exclusive negotiating period with Skydance, a Hollywood studio run by tech scion David Ellison. Paramount has been in discussions with Skydance for months about a complicated transaction that would involve a merger and an investment from private equity firm Redbird Capital Partners.

The new joint expression of interest would make Sony a significant majority and controlling shareholder and Apollo a minority shareholder. The proposed cash takeover could be attractive to Paramount shareholders who have spoken out against the Skydance deal because they are concerned that the company’s controlling shareholder, Shari Redstone, will benefit at the expense of others.

Paramount declined to comment.

The proposed merger of Sony and Paramount would create a new powerhouse in Hollywood and unite the studios behind the “Spider Man” and “Mission: Impossible” franchises. Sony executives have discussed operating the Paramount studio as part of their broader empire, combining their marketing and distribution functions.

Sony, a sprawling international conglomerate known for its cutting-edge electronics operations, is an unconventional candidate for Paramount. Like Comcast, which owns NBCUniversal, Sony has a highly profitable business outside of traditional media, generating hundreds of millions of dollars from video games, music, imaging and sensors. That insulates Sony from the problems of the media industry, which has been challenged lately by the decline of traditional theater and the demise of cable television.

The letter, signed by Tony Vinciquerra, CEO of Sony Pictures Entertainment, and Aaron Sobel, a partner at Apollo, is intended as a starting point for negotiations to acquire the company, according to a person familiar with the matter. The two parties have not yet begun due diligence, a process that could impact the amount Sony and Apollo are willing to pay.

A looming question for both Apollo and Sony is the ultimate fate of Paramount’s CBS broadcast network. Regulations limit foreign ownership of broadcast networks, presenting a potential roadblock for Sony Pictures, a division of Tokyo-based Sony Group Corp.

But the companies believe they can overcome those concerns, according to two people familiar with their plans. Apollo, a US-based company, already owns TV channel group Cox Media Group, a deal that required approval from the Federal Communications Commission, which oversees US broadcasters. However, the FCC blocked a separate deal involving Apollo when investment firm Standard General tried to buy Tegna, a TV station group, with financing from Apollo.

One possible solution under consideration is to let Apollo, which has already received government approval, keep the license for the CBS broadcast network, the people said.

It remains to be seen whether an offer from Sony and Apollo would be acceptable to Redstone, whose controlling interest would allow her to veto any deal. Redstone has already signed a potential deal to sell its controlling stake to Skydance, but that deal is contingent on a separate deal for Paramount.

The expression of interest from Apollo and Sony puts additional scrutiny on the special committee of Paramount’s board of directors that is evaluating the company’s options. An all-cash alternative to Skydance’s offer – which many shareholders have expressed support for – would put pressure on negotiations between Ellison and Paramount.

The deal talks come at a chaotic time for Paramount. Bob Bakish, the company’s former CEO, resigned this week amid tensions with Redstone. Bakish, who had expressed reservations about the Skydance deal, was an architect of the company’s current strategy of signing up subscribers to the Paramount+ streaming service.

In his place, Paramount’s board has appointed a trio of executives to run an “office of the CEO” within the company. Collectively, the executives: George Cheeks, CEO of CBS; Chris McCarthy, CEO of Showtime and MTV Entertainment Studios; and Paramount CEO Brian Robbins have decades of experience at the company but are untested in their current three-way leadership roles.

This article originally appeared in The New York Times.