Paramount and Skydance are moving closer to a merger, with a major obstacle still in their path.

• Sources informed CNBC that Skydance Media and its private equity investors are aiming to finalize a deal with Paramount Global in May.
• The main obstacle to finalizing a deal is the renewal of carriage negotiations between Paramount Global and Charter Communications.
• Sources reported that Skydance's plan would appoint David Ellison as CEO of Paramount Global and Jeff Shell as president.

Shari Redstone's controlling share in the media companies is being bought out by Skydance Media as they make progress on a merger deal.

The special committee of Paramount Global and Skydance Media, backed by private equity firms KKR and RedBird Capital Partners, are currently determining the value of Skydance's assets as part of a merger and the amount of equity to be added to the company as part of a recapitalization, according to sources.

The entertainment company Skydance is expected to be valued at around $5 billion and merged with Paramount Global, according to sources who requested anonymity due to the confidential nature of the discussions. Ellison and private equity firms plan to raise approximately $4.5 billion to $5 billion in new equity, with about $2 billion going towards paying Redstone and another significant portion being used to pay down debt.

The Skydance consortium wants to extend the exclusivity window on merger talks by two weeks, said three people. This is because Paramount Global was slow to open a data room to the consortium, which has slightly pushed back the timeline on a deal. The exclusivity window on merger talks ends May 3.

According to two sources, Skydance is considering naming Ellison as CEO of Paramount Global and Shell as president. Bakish, the current Paramount CEO, is expected to leave the company, the sources added.

According to sources, Apollo and Sony have discussed a potential deal to purchase all Paramount Global shareholders at a premium price. However, the special committee has not received any concrete details on this offer and does not consider it a competitive bid to Skydance's interest, two sources said.

The committee opted to ignore Apollo's initial offer and instead engage in exclusive talks with Skydance. One source stated that the committee preferred Skydance's offer because it promised shareholders future growth potential by maintaining the company's public status and improving its financial health.

Representatives from Apollo, the Paramount Global special committee, Paramount Global, and Skydance's consortium did not respond to requests for comment.

Last big hurdle

The renewal agreement between Paramount Global and Charter Communications for CBS and its cable networks is a significant hurdle that could affect the value of Paramount Global. If Charter drops the networks or agrees to a lower carriage rate, it could negatively impact Paramount Global's worth, according to sources.

On April 29, Paramount Global reports first-quarter earnings, while the deadline for that agreement is April 30.

Despite its diversification efforts, Paramount Global remains heavily reliant on its traditional TV business, which generates approximately two-thirds of the company's overall revenue.

Disney's networks were briefly dropped by Charter, the second-largest cable provider in the U.S., during renewal negotiations last year. However, the parties reached a deal 10 days later.

Disney's ESPN is more popular than Paramount's cable networks, potentially making Bakish vulnerable.

The merger between Skydance and Paramount Global, which is set to occur at an uncertain time, creates an awkward dynamic, as Bakish, who will depart the company, will have control over its future with Charter.

Since becoming CEO, Bakish has consistently secured renewal agreements with major pay-TV distributors, including during his tenure at Viacom, which began in 2016.

According to sources, Bakish has privately opposed the Skydance deal due to its diluting impact on common shareholders. Additionally, several Paramount Global investors have penned letters to the board, urging them not to proceed with the Skydance deal, as it benefits Redstone with a substantial premium for her controlling shares while leaving common shareholders out in the cold.

Nearly 50% of the company will be owned by Skydance and its private equity partners, while the rest will be owned by common shareholders and the company will continue to trade publicly, according to a deal's terms, as reported by CNBC earlier this month.

Bakish stated during Paramount's recent earnings call in February that the company is constantly seeking ways to increase shareholder value for all shareholders.

Disclosure: NBCUniversal is the parent company of CNBC.