Good day all. It’s time for a bit of a change of pace. Recently, Warner Bros. Discovery was made a tender offer to be acquired by Netflix. This led Skydance/Paramount to make an offer of their own. The bid appears to be better than Netflix’s, however, Warner Management has refused to entertain the Paramount bid.
A few years ago, AT&T, which had owned Warner Brothers, decided to unload them spin them off as a separate, independent company. Part of the reason was CNN, which is a complete money pit. There were a few other issues as well. However, the divorces was completed and Warner became an independent company listed on the Nasdaq.
Now I will say that I do own a few shares of Warner Brothers stock. I acquired these when they were split off from AT&T, which I also have a few shares in. I considered dumping them, but since it was such a small amount, I decided to hold on and see what happens. I will say a bidding war is doing nice things to the stock price.
Now as I understand it, Netflix wants the production company and the film library. They don’t want CNN or the streaming services except for HBO. (Which is owned by Warner) Paramount has said they want it all, including the streaming services and CNN. Warner management, for their part has been working on splitting off the streaming part including CNN as they see it is a major financial hole and they have been working on that split.
This is where things get interesting. Warner’s management and the Board of Directors have ignored Paramount’s bid and recommended to the shareholders that they go with Netflix. From what I understand, the Paramount offer was for cash and the Netflix offer was cash and shares in Netflix. Additionally, Paramount said that their offer wasn’t the final one.
Then the fun part began. When Warner’s CEO, David Zaslav, was contacted by David Ellison, he basically ignored him. This led to the Ellisons to start a hostile takeover bid. (Those are really good for the stock price and the shareholders) Now it looks like David Ellison has filed a lawsuit against Warner. Here are the details from the Hollywood Reporter:
In a letter to WBD shareholders Monday, Paramount CEO David Ellison said his company has filed suit against WBD in Delaware seeking greater financial disclosure of the Netflix deal. Additionally, Ellison said his company plans to nominate its own slate of directors for WBD’s board who they believe would vote against the deal with Netflix.
After repeated attempts, Paramount has stuck with its $30 per share tender offer for Warner Bros. Discovery and has argued that its all-cash bid remains “superior” to the deal that WBD signed with Netflix. WBD’s board rejected Paramount’s latest bid, which included a personal guarantee from Oracle founder Larry Ellison, saying that it still did not address all their concerns.
There is another issue, actually several issues, with the Netflix offer. First is regulatory. There may be some antitrust issues due to HBO being in the mix. Then there is the concern that Netflix, once they have the Warner Brothers studio, will no longer make movies to go into theaters. Thanks to a number of factors, the Covid lockdown, not to mention really crappy movies of late, theater chains are not doing well at all. Paramount and Skydance do put their films into theaters.
In the letter Monday, Ellison argues that there is a “customary financial disclosure a board is supposed to provide shareholders when making an investment recommendation.” But he argues that Warner Bros. has failed to provide these disclosures, including how it valued the overall Netflix transaction and the basis for the “risk adjustment” of Paramount’s offering. He’s filing the suit to compel WBD to provide that information to its shareholders.
Now we’re into the arcane world or mergers and acquisitions. I’ve had some experience with these, either being acquired or doing the acquiring. It’s a lot of work and I was working the IT side, mostly gathering data.
Because Paramount’s offers thus far have been rebuffed, Ellison wrote that the decision will likely come down to votes at the shareholder meeting. While he writes that he does not know whether that will be at the WBD annual meeting or a special meeting, Paramount plans to nominate its own slate of directors. Additionally, Paramount “will propose an amendment to WBD’s bylaws to require WBD shareholder approval for any separation of Global Networks.”
I think part of the issue here is that the offer by the Ellison’s wasn’t so much as rebuffed as totally ignored. Zaslav and the board refused to even discuss it. Now all the fun things like shareholder notices, board meetings, special shareholder meetings are starting to happen. From the Warner side, it’s all about blocking Paramount. From Paramount’s side, it’s all about making the deal and letting the actual owners, basically the shareholders, know what the better offer is. And it looks like some of the shareholders are taking a look. Here are a few details from MSN:
Pentwater Capital Management, the seventh largest shareholder in Warner Bros Discovery, has sent a letter to the media giant’s board of directors accusing it of not fully engaging with Paramount’s revised $108.4 billion bid for the entire company.
In an interview with CNBC, Pentwater’s CEO Matt Halbower said David Ellison’s eighth offer is “economically superior” to Netflix’s $83 billion deal for Warner’s streaming and studio assets.
“It is superior in terms of regulatory risk, and I understand that the board has some legitimate issues with it, but those legitimate issues don’t warrant giving Paramount the stiff arm and refusing to actually have a conversation. That’s not how I want my board of directors to act,” Halbower told the outlet. “I want them to be willing to engage in a conversation with a party that has the ability to close a transaction and has indicated publicly that it’s $30 offer is not best and final, which screams to me that it is willing to pay even more than 30.”
And this is where reports that some of the major shareholders are talking with Skydance. If this is the case, and if the Skydance/Paramount group is willing to “sweeten the deal,” then the odds are that Warner will be acquired by the Ellisons.
There are a whole library full of rumors on why Zaslav and the board aren’t talking with Paramount. I’ve heard that Netflix will keep Zaslav on as the head of the new “Division” where Skydance won’t. (They sure as hell won’t now) Another rumor is that Zaslav and the board want to keep CNN out of the hands of the Ellisons. They’re worried that Bari Weiss will also be given management control of CNN in addition to CBS News and remove all the Democrat apologists and propagandists. Basically return CNN to it’s original mission of being a trustworthy news source.
I have no idea if this is accurate, and frankly. Ms. Weiss has enough on he plate cleaning out the mutineers and troublemakers in CBS News. I do know that within the United States government, everyone is opposed to Netflix getting Warner Brothers. You literally have Senator Elizabeth “Fauxahontas” Warren and President Trump agreeing with each other that allowing Netflix to take over Warner would be a bad idea. When you have those two in agreement on something?
Now we wait for the next move. These deals take time and when you have a fight like this, it can get very bloody, so to speak. For the shareholders? This is a great time to own stock.
Thatisall
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