Happy Sunday, welcome back to Dry Powder.

Now that Shari Redstone is facing what appears to be a busted auction for Paramount Global, it’s no surprise that the private equity behemoth Apollo has wriggled to the surface. (Faithful readers will recall that I’ve been contemplating Apollo’s involvement in this process from the outset.) In today’s issue, what Apollo seems to want from Paramount, and what a bid could mean for the Ellisons and Allens of the world...

But first, a few shorter notes from Dylan Byers, Teddy Schleifer, and myself…

• Zucker’s bid vanquished: Jeff Zucker and Sheikh Mansour’s bid to acquire the Telegraph and Spectator has effectively been quashed following Prime Minister Rishi Sunak’s decision to introduce an amendment to ban foreign ownership, influence, or control of U.K. newspapers and periodicals. The new amendment is extremely comprehensive and, I’m told, will limit foreign ownership to a minority passive investment of less than ten percent. This effectively means that both the Tory broadsheet and the storied weekly magazine are all but off the table for RedBird IMI. In a statement, Allison Gollust, Zucker’s partner who now runs comms for RedBird IMI, said they were “extremely disappointed” by the government’s decision and evaluating “next steps.” It’s hard to see what those steps might be; this seems like an unequivocal victory for Tory opponents of the bid, and those who feared Gulf influence over their storied news outlets more broadly. Alas, it’s also a bummer for these entities, which need to go through the ringer once more.

  What happens next is unclear, but the most likely scenario is that in due time the Telegraph and Spectator will return to auction. The leading bidders for the Telegraph will likely be Daily Mail owner Lord Rothermere and GB News owner Paul Marshall, who had been vying for the asset before Zucker launched his eleventh-hour debt-for-equity swap. Meanwhile, well-informed sources tell me the top bidders for the Spectator will probably include Rothermere, Rupert Murdoch, Czech business magnate Daniel Křetínský, and English hotelier Rocco Forte, among others. —Dylan Byers

• Sternlicht’s private island awash…: It looks to be the end of the line for the billionaire Barry Sternlicht’s beautifully renovated and appointed three-bedroom Nantucket home, which sits on a fast-eroding spit of land between the Atlantic Ocean and Hummock Pond, a finger of brackish water adjacent to the house. I’ve been writing about Sternlicht’s predicament on Nantucket for a few years now. But earlier this month, he applied for, and received, an immediate demolition permit from the Nantucket Historic District Commission. The house will soon be torn down.

  Sternlicht, the C.E.O. of Starwood Capital Group and the founder of Starwood Resorts, first bought 289 Hummock Pond Road out of foreclosure in 2010 for $610,000 and then, in 2019, bought the property next door, at 287 Hummock Pond Road, for another $1.3 million. His idea was to tear down the home and garage at 287 Hummock Pond Road and move the 1,800-square-foot home next door to that lot. But Mother Nature had a other ideas. Thanks to hurricanes Paulette and Teddy in the fall of 2020, a huge swath of the beach between the ocean and his house was washed away. He tried to reach a deal with his neighbor, billionaire hedge fund manager and former Celtics minority owner James Pallotta, to move the house across his property. But I guess it was not to be. (I am fully sympathetic; erosion is also a problem on the other side of the island, in Sconset, where I still have a home… for now.)

  Sternlicht’s home has been up on steel girders since the storms wiped out about 60 feet of beachfront. Now it will end up in a dumpster. Sternlicht, who once owned another home on Nantucket, will now be homeless on the island. —William D. Cohan

• Shanahan tea leaves: On Wednesday, when I saw that R.F.K. Jr. planned to announce his V.P. pick in Oakland, my mind raced… could it be Nicole Shanahan, the Bay Area philanthropist who flickered into the national consciousness after an ugly dustup between Elon Musk, The Wall Street Journal, and her ex-husband Sergey Brin? After all, Shanahan had put millions of dollars into R.F.K.’s super PAC, and was the brains behind his Super Bowl ad. Plus, she is from Oakland. And would it be a crazier pick than Aaron Rodgers?

  Indeed, after talking to sources last week, I learned that the R.F.K. campaign—badly in need of more cash for their ballot access campaign—is looking seriously at Shanahan as someone who could bring money to the table. Some R.F.K. allies have been cryptically informed that they won’t have to worry about the candidate’s fundraising problems in the not-so-distant future.

  While I’m not ready to go so far as other publications that are claiming Shanahan is the expected pick, I’ll just say that there has been considerable buzz about her in R.F.K.’s inner circle over the last few days. Yes, the campaign recently registered a KennedyShanahan URL, though that tells you nothing definitive since it also registered a KennedyRodgers domain, and more. But in my conversations with the official Kennedy campaign and other sources over the last several days, I can confirm that she’s in the running. I’ll have more on this in this week’s Stratosphere private email. —Teddy Schleifer

A decade ago, when Viacom and CBS were separate, publicly traded companies, albeit still controlled by the Redstone family, their combined market cap was $75 billion. These days, five years after Shari Redstone forced the recombination of CBS and Viacom into Paramount Global, the company’s equity value is down around 90 percent to a mere $7.8 billion. The Redstone family, which owns 10 percent of the economic stock of the company, has seen its on-paper family fortune sink to around $750 million.

And yet, the denouement remains unknown. On Monday, our friend Rich Greenfield, the respected media analyst at LightShed Partners, all but demanded that Shari fire Bob Bakish, the Paramount Global C.E.O. Greenfield argued that as the architect of Paramount+, the company’s money-losing disaster of a streaming product, Bakish should fall on his sword. Greenfield also reaffirmed his view that Paramount Global should never have entered the streaming wars. Instead, it should have remained an arms dealer, like Sony, rather than trying to compete against the likes of Netflix, Disney+, and Max. (As I argued last week, the plug will almost certainly be pulled on Par+, one way or another.)

Greenfield acknowledged that the situation has become quite dire. “Not only was Paramount’s original decision to launch Paramount+ a mistake, [the company] has repeatedly doubled down on its strategy and left Paramount with a subscale streaming platform, a weakened relationship with its [distributors] and an over-levered balance sheet as linear TV headwinds grow stiffer,” he wrote. “We believe Shari Redstone and National Amusements must terminate Bakish and seek new leadership at Paramount immediately. It may already be too late to save Paramount, but a new strategic direction is the best hope Redstone and National Amusements have for saving what is left of the company.”

Advocating for a C.E.O. change in the middle of a takeover process is, no surprise, quite unusual and does not exactly inspire confidence in the company or the sale process. There’s no indication that Shari agrees with Greenfield, by the way, or that Bakish will be departing anytime soon. In fact, some who have worked with them suggest that their dynamic is the antithesis of her relationship with her father, who ignored her and passed her over. Bakish, instead, is a loyal supplicant, and the loyalty appears to be reciprocal. But that isn’t exactly leading to financial results. Oh well, can’t have everything.

And here’s where things get even more complicated, and the potential for a serious conflict of interest between advisor and client grows larger every day. First of all, in addition to the $125 million preferred, BDT & MSD also made available to NAI another $100 million of preferred in a “shelf offering,” which means that if NAI wants the money, all it has to do is draw it down. And, lo and behold, according to Paramount’s public filings with the S.E.C., NAI has recently done just that to the tune of $50 million. That makes Shari’s obligation to Byron $175 million, not $125 million. And what’s more, since the preferred is a “PIK,” or payment-in-kind, Shari’s obligation to her financial advisor is now $175 million plus another 7.75 percent in more preferred annually. The NAI preferred also comes with warrants to buy stock in Paramount Global.

All in all, it’s a very expensive piece of paper that could become a ticking time bomb for Shari. It could also potentially put her in a serious conflict of interest with Trott. I asked a spokesman for BDT & MSD what the accreted amount of the PIK preferred is these days, but did not receive a reply. However, it’s certainly more than $175 million at this point, and increasing every day…

We’re obviously a ways off from BDT & MSD getting control of NAI, but NAI still has the struggling movie theaters and around $200 million of debt, and the longer the NAI/Paramount Global sale process drags on, the more likely it is that Trott could become the principal in this drama, rather than merely an advisor. It’s difficult to know what the equity value of NAI is given the opaque nature of its obligations, but if Shari draws down the rest of Byron’s PIK preferred, and it continues to grow at 7.75 percent per year, it wouldn’t be the first time that a preferred stock investor got control of a struggling company by converting the preferred equity to outright ownership. This could be a major, unexpected plot twist, especially given the other complexities in a potential deal—namely the $11.2 billion of senior notes that have a change of control provision that obligates the debt to be repaid or refinanced upon a Redstone sale of Paramount or NAI.

None of this is the straightforward, simplified sales process that Shari and Aryeh Bourkoff, her other favorite banker, may have contemplated when they merged the companies years ago. And that’s why Apollo has entered the picture.

In 2019, Apollo paid $384 million for Northwest Broadcasting and its 20 local television stations, and paid another $3.1 billion for a 71 percent stake in Cox Media and its 13 local television stations, in such markets as Atlanta, Charlotte, and Boston. The two deals, combined into Cox Media Group, gave Apollo a portfolio of 33 local television stations, making it the seventh-largest owner of local television stations in the country and the only large television group in the hands of a private equity firm.

Apollo also made investments in other media companies, including buying Yahoo, in 2021, for $5 billion. (A refurbished Yahoo is rumored to be in line for an I.P.O.) The firm also acquired a minority stake in Hollywood’s Legendary Entertainment—the production company behind Dune, the Dark Knight trilogy, and Jurassic World—which is private, for $760 million. (Legendary is majority-owned by Dalian Wanda Group, the Chinese conglomerate.) There is little question that Apollo’s ambitions in media and entertainment are legit.

And now, the increasingly broken Paramount Global process favors Apollo, which is expert at turning such situations to its advantage. One other note of interest to the bankers reading this: Apollo has reportedly been in contact with the special committee of the Paramount board of directors, which is being advised by Centerview Partners and which was set up to evaluate offers for Paramount—and presumably for its component parts, if legitimate offers are made for them. It’s also significant that Apollo has been in contact with the special committee as opposed to Trott. That says to me that Apollo is focused on Paramount, or some of its assets, as opposed to the seemingly clever effort (pursued by David Ellison) to take over NAI. Apollo knows better than to try to do that. So maybe Apollo is readying a bid for what it really wants out of Paramount, which I assume would be CBS plus the local CBS television stations, and then somehow figuring out how to buy all that in a tax-advantaged way.

There are lots of scenarios where Apollo could play a key role, and an investment thesis is emerging. I have got to believe that marrying CBS, both the network and its affiliates, with Apollo’s TV portfolio could lead to significant synergies (read: cost cuts) and leverage with distributors. After all, if Apollo could figure out a way to revive Yahoo after it was owned, idiotically, by Verizon, the firm can certainly figure out how to make money here. Meanwhile, who knows what will happen to the cable assets, including Showtime, Comedy Central, and the Nickelodeon Group. Maybe Byron Allen would step up to buy these along with BET, which he has already expressed interest in. Or maybe they can be spun off with Paramount’s debt into a new, sad, public company. Or maybe that is what is left of Paramount after the vultures have picked over the carcass.

What’s the best outcome for the Redstones at this point? I know it’s not what Shari was hoping for, but if I were her, I’d shutter Paramount+, saving some $500 million a year, and make a content deal with another streamer. That would give an immediate boost to the Paramount stock price. I’d ignore Greenfield’s suggestion on Bakish (even though he’s probably right) and then take the company off the market and wait for another cycle. By then, we’d know more about the Iger revival, and if Zaz and Brian Roberts can find a way to put together a deal for WBD and NBCU, and we’d know more about the ultimate media ambitions of Apple, Amazon, and Netflix. But there is no guarantee that she’ll have better choices then than she does now.