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Sony's shares tumble amid concerns over Paramount acquisition financing


Sony's shares tumble amid concerns over Paramount acquisition

Sony Group Corp. witnessed a notable decrease in its share value, marking the most significant drop in nearly three months, following the announcement of a potential acquisition of Paramount Global. This sharp decline has raised concerns among investors about Sony's ability to finance such a large transaction. The stock fell as much as 4.2% on the Tokyo stock exchange, reflecting market apprehensions about the financial implications of the proposed deal.


In a strategic move to expand its entertainment footprint, Sony, in partnership with Apollo Global Management Inc., has put forward a $26 billion bid to acquire Paramount. This proposal is still under review by Paramount as they consider the implications and benefits of such an agreement. Information about this potential acquisition comes from individuals who are directly knowledgeable about the ongoing discussions.



The collaborative proposal by Sony and Apollo has sparked investor anxiety concerning Sony's financial stability, especially given that the value of the deal is greater than Sony's current cash reserves. Yugo Tsuboi, chief strategist at Daiwa Securities, highlighted these concerns, noting that investor unease is primarily rooted in how Sony plans to finance the deal. He suggested that once more details are provided regarding the financial strategy for the acquisition, the focus among investors may shift to the potential strategic benefits that could arise from owning Paramount.


Sony's financial position includes about ¥1.5 trillion ($9.7 billion) in cash and cash equivalents, as reported by Bloomberg. The electronics and entertainment conglomerate is considering a structure where it would hold a majority stake in a new joint venture with Apollo, which would also serve as an investment partner. Details about this arrangement have been shared by people familiar with the plans.



Sony's performance in the stock market has been lackluster this year, with its shares falling more than 5%, a stark contrast to the 16% increase observed in the Topix index. This downturn is part of a broader slump in the global electronics industry. The company also reduced its sales forecast for the PlayStation 5 gaming console in February, indicating ongoing challenges within its consumer electronics division.


The potential acquisition of Paramount by Sony is likely to draw significant regulatory scrutiny, especially due to the inclusion of CBS in the deal—a channel that cannot be owned by foreign corporations under current regulations. This regulatory hurdle is compounded by the prevailing political climate, which might intensify the scrutiny of such a large-scale international transaction. Amir Anvarzadeh from Asymmetric Advisors pointed out that the success of the deal hinges on Sony's ability to address these regulatory challenges, particularly through the sale of CBS. Without resolving this issue, the transaction faces a high likelihood of not proceeding as planned.


07.05.2024



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