Paramount's Governance Crossroads: ISS Opposition to Redstone Sparks Uncertainty

Institutional Shareholder Services (ISS) has thrown a wrench into Paramount Global's (PARA) governance narrative by recommending shareholders reject the re-election of Shari Redstone and three board members. This move underscores simmering investor discontent over the company's multi-class stock structure, opaque executive pay practices, and the stalled $8.4 billion Skydance Media merger. The outcome of the July 2 shareholder vote could force structural reforms—or deepen regulatory and leadership risks, creating a “hold” scenario for investors until clarity emerges.

Governance Risks: Voting Rights and Compensation Flaws

ISS's opposition hinges on two pillars: a misaligned capital structure and questionable executive pay. Paramount's Class B shares, held primarily by the Redstone family, grant 10 votes per share, while Class A shares (owned by public investors) get one vote. This imbalance, ISS argues, undermines “one-share, one-vote” principles and entrenches family control. The board's failure to address this—despite years of criticism—has fueled distrust.

Compounding the issue is the compensation committee's design. ISS highlighted the “time-vesting” nature of long-term incentives and performance metrics tied to individual goals, which may prioritize short-term gains over shareholder value. The three board members on the compensation committee (Barbara Byrne, Linda Griego, and Susan Schuman) face direct blame, as their policies risk misaligning pay with long-term profitability.

The stalled Skydance merger adds another layer. Regulatory delays, including President Trump's lawsuit against CBS, have kept the deal in limbo. ISS's stance suggests that Redstone and her son Tyler Korff's planned exit post-merger—a key governance reset—may never happen if shareholders revolt.

Valuation Uncertainties: A "Value Trap" with Risks

GuruFocus metrics paint a conflicted picture. The GF Value of $12.50 (vs. PARA's June 2025 price of ~$12.10) implies 3.6% upside, but the “Possible Value Trap” warning flags deeper issues. Paramount's P/B ratio of 0.50—near its 10-year low—suggests undervaluation relative to book value. Yet its P/E ratio remains “At Loss” due to trailing net losses, and an Altman Z-Score of 0.81 places it in the “Distress Zone,” signaling a high bankruptcy risk.

The D2C segment's $109M OIBDA loss (Q1 2025) and flat TV Media ad revenue highlight operational struggles. While Paramount+ subscriptions grew 11% to 79 million, affiliate revenue dropped 8.6%, and subscriber declines are expected in Q2. This volatility creates a valuation paradox: the stock looks cheap on assets but perilous on earnings and debt.

Analysts reflect this duality. The average price target of $12.08 (consensus “Hold”) is split between bulls (e.g., Guggenheim's $14.00) and bears (e.g., JPMorgan's $10.00). The highest target ($16.00) hinges on Skydance's approval and governance fixes, while the lowest ($10.00) factors in persistent losses and debt risks.

Investment Thesis: Hold Until Governance Clarity

The ISS recommendation creates a high-stakes governance referendum. If Redstone's board is ousted, Paramount could adopt reforms like a single-class stock, transparent pay metrics, and accelerated merger progress. However, a shareholder revolt risks destabilizing leadership during critical transitions—especially if Skydance's David Ellison takes control amid ongoing legal battles.

Risks to the “Hold” stance:
1. Regulatory Delays: The FCC's Skydance approval timeline is uncertain, with political interference a wildcard.
2. Leadership Vacuum: A board shakeup could disrupt strategic execution unless a clear successor is named.
3. Valuation Traps: The GF Value assumes stable growth, but negative EPS and a distressed Z-Score cloud this premise.

Bull Case Catalysts:
- Skydance merger closure by late 2025.
- Redstone's exit and adoption of “one-share, one-vote.”
- Turnaround in D2C OIBDA and ad revenue growth.

Bear Case Risks:
- Trump lawsuit escalates, further delaying FCC approval.
- Debt burdens worsen, triggering credit downgrades.
- Subscriptions decline more sharply than guided.

Conclusion: Wait for Governance Resolution

Paramount's governance flaws and valuation uncertainties demand a cautious “hold” stance. While the stock appears cheap on assets and GF Value, its distressed financial metrics and unresolved leadership questions outweigh near-term upside. Investors should await the July 2 vote outcome, Skydance's regulatory progress, and Q2 earnings to gauge whether governance reforms can stabilize the ship. Until then, PARA remains a high-risk, low-reward bet.