Inside the Paramount Skydance camp, there’s a running joke about what new “excuse” Warner Bros. Discovery will come up with next to reject PSKY’s latest “sweetened” takeover offer for the media conglomerate.
“This time, I bet they say they don’t like the type of paper we use,” quipped one person on the Paramount team.
There’s also mounting anger at WBD CEO David Zaslav and his board.
It was Zas — as the mercurial mogul is known in media circles — who upended Paramount Skydance’s attempt last September to buy the company for $19 a share by creating a bidding war that is now pushing the sale price into the stratosphere.
Streaming giant Netflix emerged as the winner, at least for now.
But Hollywood producer David Ellison — the CEO of Paramount Skydance who is partnering with RedBird Capital’s Gerry Cardinale and who is financially backed by dad Larry Ellison’s $240 billion fortune — won’t give up the ghost.
Thinking of litigation
They’ve launched a hostile bid for the company with ever-sweetened offers that keep getting spurned.
Now, as I was first to report, they’re thinking about litigation — their so-called DEFCON 1 strategy — because they think the process was rigged from the start to give Netflix the upper hand.
They haven’t ruled out increasing their offer, at least as this report goes to press, but the mood internally is that they need to play the long game, try to convince investors their deal is superior to Netflix’s, and maybe even sue Zas & Co. for rigging the bidding process and favoring a less shareholder-friendly combo.
Zas and his people deny the rigging charge, and they’ve provided disclosures explaining the bidding process including multiple meetings with the Ellisons.
But the Paramount Skydance peeps point to the friendship of Zas and Netflix CEO Ted Sarandos hovering over the selection, which IMHO is the least compelling piece of the argument.
The C-suite of the media business was and is a boys club, and what I know about Zas is that he’s an economic animal.
He’s really looking for more money.
More compelling is the Ellisons’ tick-tock of how they keep getting the alleged shaft.
First Zas & Co. wanted $30 a share for the entire company.
After the Ellisons checked that box, they came back with an all-cash offer.
Then Team Zas demanded that Larry Ellison personally guarantee the $78 billion all-cash offer and pay the $2.8 billion breakup fee from the Netflix deal.
The Ellisons say they will, but still believe WBD’s board is likely to tell them to pound sand next week.
How this turns out is anyone’s guess, but if I were to bet, I would lay odds on the following scenario: Zas is already offering an olive branch of sorts, telling media people how much he admires and respects Oracle co-founder Larry and thinks David Ellison is not just an excellent movie producer (“Top Gun: Maverick” is among his credits), but that Zas was impressed with David’s dealmaking skills.
Zaslav also has been saying he’s open to a higher offer, and the words “$34 a share” keep coming out of his mouth and making their way back to the Ellisons and RedBird.
Big egos
I, for one, think the Ellisons and RedBird will go there, but first a few caveats.
Lots of big egos are involved: Zaslav, Sarandos, Cardinale, top bankers on both sides, not to mention one of the world’s richest men in Larry Ellison.
So don’t discount DEFCON 1.
Plus, Paramount Skydance truly believes it has a superior offer.
It’s bidding for the entire company, not just studio and streaming that Netflix wants, and there’s little regulatory overlap.
Netflix would have to convince the Trump DOJ Antitrust Division that combining the Nos. 1 and 3 streaming services will be good for consumers.
(Larry Ellison is a longtime Trump supporter.)
The Ellisons also argue the numbers don’t work on the Netflix deal, a $27.75-a-share offer that includes Netflix’s own stock (which has been getting hammered) that goes into coming up with around $80 billion.
WBD shareholders would get screwed even more because its “higher” value is derived from a separate sale of WBD cable properties — a so-called equity stub — for as much as $3 a share.
CNN, TNT and Discovery will be stacked with $15 billion in debt under the arrangement on top of losing subscribers due to cord-cutting, so good luck with that.
“There’s no f–king way they’re paying $34,” is how one person close to the Paramount Skydance team put it.
“They think this bid is simply better.”
And yes, the people at Paramount Skydance are pissed; they believe Zas — a veteran of NBCU and later Discovery Inc. and mentored by the likes of Jack Welch and John Malone in the art of dealmaking — was being too cute by handing over the keys to Sarandos despite PSKY’s superior offer.
Lots of sound and fury still coming out of this deal, now in its fourth month.
But if I were to bet, cooler heads will prevail, the Ellisons sweeten their price and they will make Zas an offer he can’t refuse.
