Sony Shares Fall as Paramount Deal Fuels Financing Problems

(Bloomberg) — Shares of Sony Group Corp. fell the most in nearly three months after the proposal to buy Paramount Global raised financing issues.

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The stock fell as much as 4.2% in Tokyo. The Japanese electronics company and Apollo Global Management Inc. have made a $26 billion proposal to buy Paramount, which is weighing the offer, people with knowledge of the matter said.

“Although it is a joint offer, investors are concerned about Sony’s finances” as the deal size exceeds Sony’s cash holdings, said Yugo Tsuboi, chief strategist at Daiwa Securities. Once there is more clarity on how the deal will be financed, investors will start looking at the benefits, he said.

Sony holds about ¥1.5 trillion ($9.7 billion) in cash and cash equivalents, according to Bloomberg data. The Tokyo-based company is considering acquiring a majority stake in the new venture, with Apollo as an investor, the people said.

The deal represents a significant premium for Paramount, based on the company’s $9 billion market capitalization and $12 billion in net debt, Macquarie Capital’s Damian Thong said in a note to investors. “We don’t think buying Paramount makes sense.”

Sony shares have fallen more than 5% this year, compared with a 16% gain in the Topix index, amid a global electronics slump. The company lowered its expectations for sales of the PlayStation 5 gaming console in February.

Sony deal for Paramount would require additional oversight

“In addition to the impact of the acquisition on cash position and debt, questions have been raised about the CBS channel associated with Paramount, which foreigners cannot own, and given the political climate it appears the deal will be subject to major criticism ,” said Amir Anvarzadeh, a Singapore-based strategist at Assymetric Advisors. “Unless they find a buyer for CBS, the deal is unlikely to go through.”

(Adds comment from Macquarie in fifth paragraph)

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