Paramount Stock Price Swings as Merger Offer Assessed
Paramount Stock Price Swings as Merger Offer Assessed
Paramount (PARA) dropped about 2.5%, continuing a week of volatile price action that whipsawed investors amid news of a potential merger with Skydance Media
- Paramount stock sees volatile trading amid competing offers.
- Industry giants criticize the timing of the deal, dragging stock price.
- Trading PARA amid high volatility offers options traders some premium.
Paramount (PARA) dropped about 2.5% on Friday, continuing a week of volatile price action that whipsawed investors amid news of a potential merger with Skydance Media. The majority stakeholder, Shari Redstone, has sought a deal for over a year but has fended off multiple offers.
According to the Wall Street Journal, the investment firm Apollo made a $26 billion offer earlier this week. Paramount’s board rejected the deal, as it was only for its movie studio. The board reportedly wants to sell the entire company, including its streaming service Paramount+.
PARA stock is depressed
PARA is trading at a loss of nearly 20% this year amid broader headwinds for the media industry despite the stock market being up about 9%, per the U.S. benchmark S&P 500 index (SPX). The depressed stock price has invited criticism on the timing of any potential deal. This week, Barry Diller, founder of Fox, in a CNBC interview, stated that it would be a bad time to sell. Diller’s comments seemed to inject bearish headwinds into the stock price.
Paramount+, the company’s streaming service, has suffered losses and is operating in the red, although the bleeding has slowed recently. The company has responded with aggressive cost-cutting measures. Making a deal during a transition phase toward profitability might complicate negotiations.
According to the Wall Street Journal, Redstone and David Ellison, Skydance’s CEO, have agreed to a deal. However, it would need approval from an independent board of directors at Paramount. The directors would need to approve the merger between the two companies’ production studios, which complicates the matter. If final terms can’t be reached within 30 days, other offers are back on the table for consideration.
Trading Paramount amid negotiations
The uncertainty about how the negotiations and deal will play out is reflected in the stock price. As of Friday, PARA trades with an implied volatility rank (IVR) of 76.3. The expected move for the closest monthly expiration shows an expected move of +/- 0.99. Selling a put or call spread, depending on your directional bias could offer a way to trade the stock’s premium, although the low stock price makes it more attractive to play the short strike close to the money.
Thomas Westwater, a tastylive financial writer and analyst, has eight years of markets and trading experience. @fxwestwater
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