On Friday, fans of corporate consolidation rejoiced as Warner Bros. Discovery announced that it had reached a deal to sell its movie studio and streaming businesses to Netflix for $72 billion. That was not altogether surprising news, given that Netflix's rival bidder Paramount had already started posturing about mounting a challenge before WBD announced the winner, not something you do if you think you still have a chance of winning an auction. Last week, Paramount sent an ominous letter to WBD's board characterizing the sale as a "myopic process with a predetermined outcome that favors a single bidder." At the time the letter seemed like a prelude to a hostile takeover attempt; on Monday, Paramount formally launched that attempt.
Paramount's purchase offer is simple: $30 per share, in cash, for everything. Each aspect of that offer is distinct from Netflix's. When WBD began reshuffling the company around over the summer, it wasn't a pretext or preliminary for acquisition: The conglomerate simply wanted to unburden its streaming and studio businesses from the debt-riddled TV business (in their terms, the "global networks arm"). The Netflix deal accommodates that reshuffling. The streaming giant agreed to buy WBD's movie and streaming stuff, leaving the TV half of the business to be spun out on its own. Critically, Netflix also offered a mix of cash and stock. One might see the Netflix offer, at a comparatively lower $27.75 per share, and think that perhaps David Ellison, head of Paramount, was right about the WBD board being dead-set on his competitor, but, as the Wall Street Journal reports, "Warner saw Netflix’s deal as the superior one given that Warner shareholders would continue to own shares in both companies following its planned split." Given that shareholders would retain some measure of equity, WBD's internal math put the actual value of Netflix's offer between $31 and $32 per share.
Paramount hopes WBD shareholders will disagree. But, as Paramount's framing of the dissent shows, the relative strength of the offer isn't the real argument. "Paramount's strategically and financially compelling offer to WBD shareholders provides a superior alternative to the Netflix transaction," reads Paramount's news release; the latter "offers inferior and uncertain value and exposes WBD shareholders to a protracted multi-jurisdictional regulatory clearance process with an uncertain outcome along with a complex and volatile mix of equity and cash." The key phrase there is "regulatory clearance process."
As compelling as all that cash-in-hand is, the real strength of the Paramount tender offer is the Ellisons' relationship with Donald Trump, whose FCC will hold the power of approval over any merger of this size. The Ellisons recently gave Trump a bunch of money to see through their acquisition of Paramount, as well as essentially agreeing to remake the powerful CBS News organization as he sees fit, and they are in line to help run the U.S. arm of the recently Americanized half of TikTok. David Ellison met with Trump last week and promised "sweeping changes" at CNN if his company were to win the bidding war. The day the Netflix deal was announced, an unnamed "senior administration official" reportedly told the Journal that "Trump advisers, including White House officials, are concerned about Netflix’s deal." Trump himself said the Netflix deal "could be a problem," and said of the approval process, "I’ll be involved in that decision."
In an interview with CNBC, David Ellison lauded the supposed advantages of not bisecting WBD, and emphasized that his offer means shareholders would get $17.8 billion more in cash. The Paramount board approved the $30-per-share offer unanimously and gave shareholders one month to decide whether to tender their shares. Tender offers rarely succeed, and if they do, Paramount will have to fork over an ungodly amount of cash, which it currently doesn't have. Paramount is worth an estimated $15 billion (Netflix's reported worth is roughly 27 times greater), and one might wonder where all the money to buy WBD might be coming from.
Per a Monday SEC filing, the deal would be backstopped by the Ellison family and RedBird Capital (whose bungled attempt to buy the UK's Telegraph Media Group unraveled after the Daily Telegraph published a photo of RedBird's chairman John Thornton shaking hands with Cai Qi, one of the most powerful people in the Chinese government), as well as tens of billions of dollars in debt commitments from Bank of America and Citigroup. Paramount also announced equity commitments from some of the Trump administration's wealthiest partners in corruption: the sovereign wealth funds of Saudi Arabia, the UAE, and Qatar, plus Jared Kushner's Affinity Partners (in other words, also the Saudi royal family). For all practical purposes, Paramount's bid is backed by the president himself.
The Trumps and the Ellisons are friends, people who know each other's prices, and agree to make more Rush Hour movies at each other's explicit request. What sort of friend would simply stand by while a rival buys Hollywood's most celebrated studio, makes it worse, and perhaps terminally accelerates the film industry's slide into the content slop funnel, instead of stepping in to help their ally do it instead?
