David and Larry Ellison are used to playing the long game, and that’s exactly what their media giant Paramount Skydance is bracing for in its $80 billion pursuit of Warner Bros. Discovery, On The Money has learned.
The hurdle, of course, is the bombshell lawsuit from 12 state attorneys general just filed to block the mega-merger, and the recent decision by a federal judge in San Francisco to grant a temporary restraining order that was recently extended and prevents PSKY from closing the transaction at least for another month.
The next shoe to drop, people inside the Ellison camp tell me, is likely that the deal gets delayed indefinitely with the judge issuing a preliminary injunction. A lengthy trial could follow and PSKY could lose despite having good evidence that the tie-up doesn’t violate antitrust laws. That, in turn, has the Ellisons thinking about fighting this thing all the way to the Supreme Court.
It won’t be pretty. Lots of mud thrown at the Ellisons by the Trump-hating AGs bringing the case. Shareholders of WBD could take another hit; its stock is already well below the deal price on the lawsuit and likely to fall further if the judge issues an injunction.
But it won’t be the first time the father-and-son duo has faced adversity – and won. The takeover of Paramount from the controlling Redstone family was anything but easy. They initially lost the long and contentious bidding war for Warner Bros. Discovery to Netflix, only to mount a come-from-behind victory by outbidding the streaming giant.
Their deal received the greenlight from the merger-friendly Trump administration, but the Ellisons knew a cabal of Dem AGs were waiting in the wings to scuttle their efforts, which means they and their savvy GC, Makan Delrahim, have been war-gaming this for some time.
“There’s no f–king way we give up,” said one person in the Paramount orbit. “The Ellisons don’t quit.”
To be clear, they believe the injunction is all but certain for several reasons, including the judge’s public statement when issuing the TRO, in which she cited an anticipated 27% market share of the wide-distribution theatrical release market. “On this combined firm market share alone, the Court is persuaded that it can presume the proposed merger is likely to violate antitrust laws,” she wrote.
The other reason: The judge, Araceli Martinez-Olguin, is a liberal activist appointee of the notoriously merger-unfriendly Biden administration. Throw in the connection to Donald Trump, who is friends with Larry Ellison, and you can see why they’re preparing to play the long game.
So what does the “long game” actually mean? Well, if there is a preliminary injunction, you can’t close the deal until the trial is over. That would mean paying $650 million a quarter to satisfy a “ticking fee” arrangement the Ellisons agreed to as part of their deal.
They have the money, of course; Larry is worth $167 billion even with the recent slide in Oracle shares. They also have been lawyering up for a long legal battle, that LightShed partners analyst Rich Greenfield won’t be settled until sometime in 2027.
They could walk away, but Greenfield doubts they will, and his comments align with what On The Money is getting from inside Team Ellison. To walk away would mean paying a $7 billion breakup fee and leaving the Ellisons with their partners at RedBird Capital with a smallish media company, devoid of the scale that Warner brings in terms of cable properties, streaming and of course, a world-class studio that killed it in the past year.
That said, it’s this Biden judge who will likely rule on the deal’s alleged merits and she’s cut from the same leftist-activist cloth as the state AGs bringing the case led by the hyper-ambitious California AG Rob Bonta. One interesting layer is that the European Union–not exactly a bastion of unfettered markets– just approved the merger. That puts Bonta & Co to the left of some of the most leftist regulators on the planet.
It is Bonta who is trying to contort an antitrust case arguing that two separate companies that were already engaged in downsizing because of the wonky economics of big media will actually be stronger if they remain separate. Yes, that two weaker, smaller players will be better for jobs in Hollywood and provide competition that will lead to lower prices for consumers.
It’s an absurd argument, of course. Warner Bros.’ flailing pre-bidding war stock price signaled difficult days ahead and there’s never been more competition for consumer entertainment eyeballs given the likes of YouTube, not to mention streaming in general.
Facts like those, unfortunately, are beside the point in this California court. Like the judge in the case (who was confirmed by the Senate on a party-line vote because of her leftist politics) Bonta no doubt looks forward to spending the coming months concocting fluffy legal motions, and likely claiming that Donald Trump will be in control of the combined company’s footprint, which will include both CBS and CNN.
So expect the long game to drag well into next year – and a SCOTUS ruling to finally close this deal.