Paramount/Skydance Launches Hostile Takeover Bid for Warner Bros.

For those just joining the story in progress:

David Ellison -- son of the Oracle founder and multibillionaire Larry Ellison, and himself worth millions -- owned Skydance, and then used that company to purchase one of the smaller major studios, Paramount.

Then he made a bid to buy Warner Bros. studios from Warner Discovery. That offer was rejected. Then Warner Bros. advertised that it was for sale and would entertain other offers.

Netflix made a bid to buy it, and this bid was accepted.

By management, I mean.

David Ellison still wants Warner Bros. So he's making a hostile takeoever bid. That just means that unlike the Netflix bid which was arranged with the current management of Warner Discovery and has their blessing, this bid is made against current mangement's wishes and so is "hostile" to their intentions.

But it's the shareholders who get to decide. Ellison is offering shareholders a competing bid.

Ellison's bid is $30 per share, in cash. Neflix's bid is for less cash per sale -- $27 -- but shareholders would also get shares in whatever spin-off corporation they create out of the the parts of Warner Discovery they don't want. Which is I think the "Discovery" part, all the cable channels like The Murder Channel (aka Investigative Discovery or ID).

Which is more valuable? I have no idea.

Both suitors will make the pitch to shareholders and await the shareholder vote.

Paramount Skydance is launching a hostile bid to buy Warner Bros. Discovery after it lost out to Netflix

in a monthslong bidding war for the legacy assets, the company said Monday.

Paramount will go straight to WBD shareholders with an all-cash, $30 per share offer. That's the same bid WBD rejected last week and equates to an enterprise value of $108.4 billion.

The offer is backstopped with equity financing from the Ellison family and the private equity firm RedBird Capital as well as $54 billion in debt commitments from Bank of America, Citi and Apollo Global Management, Paramount said in a news release.

A portion of the equity financing comes from outside Middle Eastern financing partners including Saudi Arabia's Public Investment Fund, Abu Dhabi's L'imad Holding Company PJSC, and the Qatar Investment Authority. Another portion derives from Jared Kushner's Affinity Partners. Kushner is U.S. President Donald Trump's son-in-law.

Those partners have agreed to "forgo any governance rights," including board seats, as part of their non-voting equity investment, according to a Paramount filing. The modifications allow the deal to be outside of the jurisdiction of the Committee on Foreign Investment in the U.S., or CFIUS.

Shares of Paramount gained 9% Monday. Warner Bros. Discovery's shares rose about 4% while Netflix was down 3%.

"We're really here to finish what we started," Paramount Skydance CEO David Ellison told CNBC's "Squawk on the Street" on Monday. "We put the company in play."

There are antitrust questions about any mergers between tech giants, of course. I think the Netflix bid will face more scrutiny, because while Netflix makes movies, it makes movies for streaming, not for exhibition in physical theaters. Yes, sometimes it exhibits a movie in theaters but only in a small number of theaters and only for a weekend or two before it puts it on Netflix exclusively. (They chiefly show movies in theaters just to meet the minimum requirements for theatrical exhibition to qualify them for the Oscars and such.)

So what antitrust lawyers in the government will be looking at is not just the diminution in competition that will occur if one media company swallows up another one, but the real possibility that if Netflix buys Warner Bros. it will use Warner Bros. movie production to make movies for its streaming service, not for theaters.

And antitrust lawyers do not like it when a reduction of competition in one industry causes disruptions in another industry.

And yes, movie production is a separate industry form movie exhibition. In fact, it was antitrust action by the government that forced this separation -- movie studios used to own their own movie theaters and play their movies in their own theaters. But the government considered this illegal vertical integration and forced the movie companies to sell their theaters to independent owners.

I don't think Netflix will be necessarily blocked from buying Warner Bros. A common result in these cases is that the government approves the merger but extracts a promise from the merged company that it will not take certain steps. Like Netflix would agree that it would continue showing Warner Bros. movies in physical theaters.

(Though that's hard to police -- Netflix could just move a lot of Warner Bros. production to the Netflix production side of things and just produce few official "Warner Bros."-branded movies.)

I think the NFL's monopoly on professional football was allowed only because the NFL agreed to never schedule games on Saturday when college teams were playing, to avoid using the professional football monopoly to damage the college football market.

This is a very perilous time for theatrical exhibitors. Hollywood is producing crap movies and consequently exhibitors don't have much product to show that the public is willing to pay for. Any reduction in the number of movies going to physical theaters could, possibly, kill the industry, or cull half of all movie theaters.

I don't know what the government will decide.

David Ellison is reportedly trying to induce Trump to block the Netflix buyout by promising that if he gets hold of Warner Bros. -- and its failing "news" channel CNN -- he'll remake CNN into a fair and balanced network.

Paramount CEO David Ellison assured Trump officials that if the government OKs his company's acquisition of Warner Bros. Discovery (WBD) he would overhaul the president's media arch nemesis -- CNN.

Netflix announced last Friday it reached a deal to acquire Warner and HBO properties for $72 billion - but Paramount immediately launched a hostile counterbid, taking its case directly to shareholders.

The Netflix-WBD merger is facing a stiff challenge from Paramount, whose majority shareholder is the billionaire Donald Trump ally, Oracle founder Larry Ellison.

On Monday, Paramount made its move, offering $77.9 billion in all-cash and urging Warner shareholders to reject the Netflix deal.

On a recent visit to Washington, DC, Ellison's son David told Trump's team he would impose sweeping changes at CNN if he purchased its parent company WBD, sources told the Wall Street Journal.

David's father Larry discussed firing hosts like Erin Burnett and Brianna Keilar - figures Trump dislikes - with White House officials during takeover bid talks last month, the Guardian reported.

Is that true? No idea. I do know that if you really were making this offer you would want to do it privately, not publicly, with the Wall Street Journal notified. Because the president isn't supposed to approve or nix mergers based on his personal or political self-interest. By making this supposed offer so public, it basically stops Trump from even considering taking the alleged "deal."

It could be that Netflix, not Ellison, is pushing this story out there to pressure Trump to approve their own bid.

Leftwing movie review Grace Randolf claimed that Warner Discovery shareholders are faced with two repellent options -- accept Netlix's deal and "kill the theater business," or accept Ellison's deal and (horrors!) put two movie studios under the control of a "conservative" man friendly to Trump.

The fact that she sees each of these possibilities as equally calamitous is what makes me think it's plausible that members of the left will just lie to stop Ellison from acquiring Warner Bros., and push Fake News stories about Ellison offering to fire Kaitlin Collins if Trump blocks Netflix's bid and approves his own. The left was horrified that Paramount was bought by (horror!) a conservative. It is offended and horrified that the much-bigger Warner Bros. might be purchased by the same conservative man.

Any thoughts? Do you buy this very-public offer of bribery to Trump from David Ellison?

I don't know about you, but if I were bribing the president, I would probably do it quietly.

Through a trusted intermediary.

Such as... well, as the article noted, Jared Kushner is part of the group putting up billions to back Ellison's bid.

So instead of just quietly telling Kushner to carry that message to his father-in-law, everyone blabs about it to the Wall Street Journal?

Seems unlikely to me. Sounds more like political partisans or Netflix executives trying to poison Parmount's pill so that Warner Discovery can't swallow it.

posted by Ace at 02:25 PM

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