Paramount has gone straight to Warner Bros Discovery’s shareholders with an all-cash offer in an extraordinary endeavour to gain control of Hollywood’s most sought-after prize – a bid that Netflix beat on Friday.
Paramount was widely expected to be the frontrunner for Warner Bros. But WBD opted instead for Netflix, which it said offered a more lucrative deal.
The proposed marriage with Netflix caught Hollywood insiders by surprise – including Paramount CEO David Ellison, who still contends that his deal was the better offer.
“We’re sitting on Wall Street, where cash is still king,” Ellison told CNBC in an interview Monday.
“We are offering shareholders US$17.6 billion ($26.57 billion) more cash than the deal they currently have signed up with Netflix. And we believe when they see what is currently in our offer, then that’s what they’ll vote for.”
Paramount offered US$30 ($45.29) per share in an all-cash deal for the entire company, while Netflix offered US$27.75 ($41.89) for Warner Bros and HBO – US$23.25 ($35.10) per share in cash and US$4.50 ($6.79) in stock.
The math is tricky, but Netflix believes the eventual spinoff of WBD’s cable assets, including CNN – which is not included in the Netflix deal – will be worth several dollars per share. In its entirety, Netflix contends that its deal will ultimately be worth more than Paramount’s offer.
Paramount, unlike Netflix, is seeking to buy WBD in its entirety. It notes its offer is worth US$108.4 billion ($163.64 billion) for all of WBD, compared to $82.7 billion ($124.84 billion) for Netflix’s offer, which doesn’t include the value of the company’s cable channels.
In accepting Netflix’s offer last week, WBD’s board clearly decided that the deal was better. It has long been argued that the cable assets will be worth more when spun off than combined with the movie studio and HBO, unlocking significant value for shareholders.
On Monday, Paramount said WBD shareholders should decide.
“WBD shareholders deserve an opportunity to consider our superior all-cash offer for their shares in the entire company,” Ellison said in a statement.
“Our public offer, which is on the same terms we provided to the Warner Bros Discovery Board of Directors in private, provides superior value, and a more certain and quicker path to completion. We believe the WBD Board of Directors is pursuing an inferior proposal.”
WBD’s stock surged 7 per cent to nearly US$28 ($42.27) a share on Monday, as investors anticipated a bidding war. Netflix may come back with an even more lucrative offer to counter Paramount’s bid. Paramount rose 4 per cent and Netflix fell more than 3 per cent.
If WBD ultimately chooses Paramount’s offer, it would owe Netflix a US$2.8 billion ($4.3 billion) breakup fee.
Paramount appeals to shareholders
In addition to his contention that his deal offers WBD shareholders more overall value, Ellison also made the argument that Paramount’s offer stands a higher chance of regulatory approval.
He noted to CNBC that Netflix’s offer would combine the number one streamer with HBO Max, which is number three – a potentially unappealing prospect for skeptical anti-trust authorities.
Ellison touted his positive relationship with US President Donald Trump (who similarly noted Sunday that he has a strong relationship with Netflix co-CEO Ted Sarandos).
“I’m incredibly grateful for the relationship that I have with the president,” Ellison told CNBC.
“And I also believe he believes in competition. And when you fundamentally look at the marketplace, allowing the number one streaming service to combine with the number three streaming service is anti-competitive.”
Netflix has contended that its deal will pass anti-trust scrutiny. It stands ready to refute Paramount’s marketplace claims by pointing to different metrics: Nielsen’s measurement of the industry shows Netflix with 8 per cent of total TV usage time, slightly under Paramount’s 8.2 per cent. By that measure, Netflix ranks sixth on the Nielsen gauge, with YouTube first and Disney at second.
Ellison said Netflix’s argument was akin to saying Coke could buy Pepsi because Budweiser sold a lot of beer – YouTube is in a different category, he argued.
He also appealed to consumers and the industry. He told CNBC on Monday the Netflix-WBD deal would spell “the death of the theatrical movie business in Hollywood.”
“It’s bad for the consumer, it’s bad for the creative community,” Ellison said. “We’re sitting here trying to save it.”
Ellison gave a sense of his plans for the broader company, creating a “real competitor to Netflix, a real competitor to Disney.” He said Paramount’s offer would better support Hollywood’s creative community than Netflix, which he argued would create an anti-competitive behemoth.
“As someone who spent the last 15 years of my life producing movies and television shows, this is an industry that I love, this is an existential moment for our business, and we believe that what we’re offering is better for Hollywood, it’s better for customers, and it’s pro-competitive,” Ellison told CNBC.
He said buying Warner Bros Discovery would create a healthy competitor that would make the industry stronger.
“What we are doing will create another scaled, healthy buyer for the creative community and talent, will put 30 movies a year in theatres exclusively,” Ellison said.
Ellison has appointed himself an unlikely saviour of Hollywood. It’s early days, but he has invested substantially in Paramount in his first few months on the job.
Although Ellison’s politics have been largely centre-left throughout his career, he has made several overtures to Trump over the past year, sitting with the president at multiple UFC events and agreeing to the administration’s conditions to complete his Paramount acquisition in August.
He also has sought to transform CBS News, paying top dollar for the right-leaning The Free Press and appointing its founder Bari Weiss as CBS’ overseer – a decision that Trump has said he approves.
Ellison said if his offer wins, Paramount would combine CBS News with CNN.
“We want to build a scaled news service that is basically fundamentally in the trust business, that is in the truth business, and that speaks to the 70 per cent of Americans that are in the middle,” Ellison said.
Ellison said he’s had “great conversations” with Trump about Paramount’s plan for its proposed news business, but he added that he didn’t want to speak for Trump, whose son-in-law Jared Kushner is involved in the deal’s financing.
In addition to former Redbird, other investors include Saudi Arabia’s Public Investment Fund and Qatar and Kushner’s Affinity Partners, which has a substantial investment from the Saudi sovereign wealth fund.
To avoid national security scrutiny, the foreign entities have agreed not to take any board seats or vote their equity stakes in the company if the deal were to go through, Paramount announced Monday.
Ellison also said his father, Oracle executive chairman Larry Ellison, one of the world’s richest people, is chipping in an unspecified amount of equity to produce the cash – an amount that David Ellison said was fully backstopped.
