This wasn’t quite the scenario David Ellison had anticipated back in September.
Only a few months back, the Paramount Skydance CEO corresponded with the Warner Bros. Discovery board, suggesting a merger of the two media and entertainment entities was a logical move. This letter was the initial one in a series proposing progressively higher bids to acquire the company, accompanied by reasons why their assets were better combined.
Paramount’s interest triggered a formal sale process — inviting Comcast and Netflix into play — which ultimately boosted Warner Bros. Discovery share values and ended, at least for now, with Paramount losing the bidding competition it initiated.
On Friday, Netflix revealed a deal to take over HBO Max and the illustrious Warner Bros. film studio at $27.75 per share, translating to an equity value of $72 billion. WBD will advance with a strategy to spin off its pay-TV networks, like CNN and TNT Sports, prior to the deal’s completion.
Instead of propelling Paramount forward, just months after seizing control of the company through a merger with Skydance, Ellison effectively passed a prestigious asset of the media and entertainment landscape to its leading competitor, enhancing Netflix’s influence and removing a clear merger target for Paramount and Comcast’s NBCUniversal.
“It wasn’t on the market previously, and they certainly hadn’t optimized or segregated the assets like they have now,” stated Netflix co-CEO Ted Sarandos during a conference call Friday morning following the deal announcement. “That kind of speaks to the ‘why now.’
Ellison kickstarted a process that has generated substantial profits for Warner Bros. Discovery CEO David Zaslav, WBD’s management team, and its shareholders.
Zaslav’s holdings
Zaslav presently owns over 4.2 million shares of Warner Bros. Discovery, alongside another 6.2 million shares that are set to be awarded to him in the future per previously granted stock awards, as per Equilar. Zaslav also holds nearly 20.9 million options with an exercise price of $10.16, Equilar uncovered.
Based on the Netflix-WBD deal price of $27.75 per share, that totals over $554 million for the WBD CEO.
Including another 4 million shares that Zaslav is anticipated to receive in January, as per a source close to the matter who opted to remain anonymous concerning the executive’s holdings, the actual amount is nearing $660 million.
For the shareholders, the sale process has yielded a comparable windfall. Warner Bros. Discovery stock settled at $12.54 on Sept. 10, the day before The Wall Street Journal reported that Paramount was readying a bid for the company.
On Friday morning, Warner Bros. Discovery shares rose nearly 3% to over $25 each. This is more than double Warner Bros. Discovery’s unaffected sale process price and a return to 2022 prices when WarnerMedia and Discovery first merged.
This serves as vindication for Zaslav, who has faced nearly four years of criticisms from Hollywood and investors for not meeting shareholder expectations. With Friday’s announcement, he’s effectively transformed defeat into victory.
And still, Paramount is likely not finished with its pursuit of acquiring all of Warner Bros. Discovery.
Paramount’s aggressive move
Ellison has acted swiftly at the helm of Paramount Skydance, reshaping the company through various deals and acquisitions.
Since the merger was finalized in August, Paramount has recruited C-suite executives and notable Hollywood talent such as the Duffer Brothers. It secured the rights to create a live-action feature film based on Activision’s Call of Duty video game series and struck a $7.7 billion deal for UFC rights.
Ellison’s pursuit of Warner Bros. Discovery has been his most significant endeavor since taking charge.
Paramount’s legal team sent a letter to Warner Bros. Discovery this week, first reported by CNBC, claiming that the sale process was skewed in favor of Netflix. Paramount has accused Warner Bros. Discovery of neglecting to appropriately assess its $30, all-cash proposal, choosing instead to sell to Netflix as a predetermined outcome.
Netflix proposed an initial bid for WBD’s studio and streaming properties of $27 a share, according to a familiar source. This surpassed Paramount’s offer at that time and shifted the course of the sales discussions in Netflix’s favor, said the individual, who wished to remain unnamed due to the private nature of the discussions.
Paramount was the sole bidder interested in acquiring all of WBD’s properties — including the film studio, streaming service and TV channels. It has asserted that its offer is superior.
Paramount’s executives and advisors assessed the Discovery Global networks portfolio at nearly $2 per share, based on its anticipated trading multiple and assumed leverage ratio, according to knowledgeable sources who chose to remain anonymous owing to the confidentiality of the discussions. Discovery Global would encompass the CNN, TNT Sports, and Discovery channels.
Warner Bros. Discovery contends that Discovery Global could hold a value of $3 per share or more if it performs favorably in public trading, according to additional sources with firsthand knowledge of the circumstances.
Paramount has also posited that acquiring the entire company would yield tax advantages for shareholders rather than only purchasing a fraction of it, and that Netflix’s offer carries higher regulatory risks. The Trump administration’s stance on the intended merger is one of “substantial skepticism,” CNBC reported Friday.
Paramount proposed a $5 billion break-up fee should the suggested deal not gain regulatory approval, according to those knowledgeable about the situation.
Netflix’s offer included a $5.8 billion break-up fee if the deal fails to obtain regulatory clearance, per a Securities and Exchange Commission filing Friday.
Paramount is now considering its alternatives regarding whether to approach shareholders with an enhanced bid — potentially exceeding the $30-per-share, all-cash proposal it made to WBD this week.
If it does proceed, Netflix would have the opportunity to match that offer. The eventual outcome might mean even greater returns for WBD shareholders — and additional profit for Zaslav.
— CNBC’s Nick Wells assisted with this report.
Disclosure: Comcast is the parent of NBCUniversal, which owns CNBC. Versant would become CNBC’s new parent company following Comcast’s scheduled spinoff of Versant.
