After exuding extreme confidence in recent months that David Ellison’s “Trump card” would clear the runway for Paramount to acquire the Warner Bros. empire, it appears that the Ellison-led media giant is crying foul now that Netflix appears to have jumped into the lead.
Lawyers for Paramount sent a blistering letter to Warner Bros. Discovery CEO David Zaslav this week complaining about the sale process, claiming that it had become “tilted and unfair” after Warner Bros. requested second-round bids from suitors looking to acquire some or all of the company’s assets. Besides Paramount and Netflix, Comcast – the corporation that owns NBCUniversal – has also expressed interest in merging with Warner Bros.
“It has become increasingly clear, through media reporting and otherwise, that WBD appears to have abandoned the semblance and reality of a fair transaction process, thereby abdicating its duties to stockholders, and embarked on a myopic process with a predetermined outcome that favors a single bidder,” the letter from attorneys at Quinn Emanuel states, which CNBC published in full. “We specifically request and expect this letter will be shared and discussed with the full board of directors of WBD.”
The note to the Zaslav and the WBD board of directors comes on the heels of a Reuters report that Netflix’s proposed purchase of WBD’s studios and streaming unit would likely reduce streaming costs for consumers by bundling Netflix’s app with HBO Max.
“In recent talks with Warner Bros Discovery, Netflix said the potential combination of its streaming service with HBO Max would benefit consumers by lowering the cost of a bundled offering,” Reuters noted, adding that the vast majority of Netflix users also subscribe to WBD’s streaming service.
The growing likelihood of Netflix winning the bidding war for Warner Bros. has sparked anxiety among investors, prompting a slight drop in Netflix’s stock price on Wednesday. Analysts attributed the sell-off to investor concerns about the large debt load and the concern that the streaming giant wouldn’t add much value compared to the huge purchase price – which appears to have reached $70 billion.
“If you’re lowering costs for customers and not getting many more of them, it’s not clear how such an acquisition would add much value,” investment site Sherwood News noted.
“As of Thursday morning, Netflix was the leading bidder based on how WBD is valuing the offers,” CNBC reported. “Comcast executives, for their part, continue to be disciplined in the company’s offer as to not anger shareholders by taking on additional debt and risking its balance sheet, according to people familiar with that company’s thinking. Comcast leadership has previously said that its bar for M&A is generally high.”
Warner Bros. Discovery opened the sale process to other bidders in October after rebuffing three offers from Paramount, the last of which was $23.50 a share. Ellison – with the backing of his father Larry Ellison, the world’s second richest man and a close ally of President Donald Trump – has felt throughout the process that his bid would be the only one that would be approved by the Trump administration.
“That’s the Trump card,” an Ellison adviser said at the time. The president has heaped praise on Ellison in recent months, following the administration’s approval of Paramount’s $8.4 billion merger with Ellison’s Skydance Media, which closed weeks after Paramount’s previous leadership paid Trump $16 million to settle his “meritless” 60 Minutes lawsuit.
In a letter to the Warner Bros. board in October, Ellison said that Paramount “was confident that we are the best partner for WBD” and that it was the only viable suitor for a merger. “Other potential acquirers of WBD — today or in the future — would need to overcome significant (perhaps insurmountable) hurdles given their dominant market positions,” he added.
Ellison has further stated that he’s interested in purchasing all of WBD’s assets, while the other suitors are essentially just interested in the streaming services and movie studios. Zaslaz has already announced WBD’s proposal to split off the company’s cable television networks – which included CNN, TNT, TBS and Discovery, among others – into a separate company.
“It has become increasingly clear, through media reporting and otherwise, that WBD appears to have abandoned the semblance and reality of a fair transaction process, thereby abdicating its duties to stockholders, and embarked on a myopic process with a predetermined outcome that favors a single bidder,” Paramount’s letter to WBD this week declared.
“Several U.S. media outlets have reported on the enthusiasm by WBD management for a transaction with Netflix, and on statements by management that a transaction between WBD and Netflix would be a ‘slam dunk,’ while also referring to Paramount’s bid in a negative light,” the letter continued. “Additional reporting since the submission of revised bids on December 1 has indicated that WBD’s ‘board has really warmed to’ a transaction with Netflix due to the ‘chemistry between’ WBD management and Netflix management.”
Prior to having its lawyers send the letter to Zaslav, Bloomberg reported that Paramount was confident not only that “its proposed merger would pass muster with regulators,” but also that WBD would have no choice but to accept its offer because of the proposed breakup fee. According to Bloomberg, WBD would receive $5 billion “if a deal is agreed to but not consummated.”
However, that confidence appears to have disappeared this week based on the tone of Paramount’s letter to Warner Bros.
“Paramount did not bargain for WBD to foster, whether intentionally or unintentionally, a tilted and unfair process,” Paramount’s attorneys wrote. “We believe that all parties to this process should have a shared desire for, and will mutually benefit from, an unimpeachable transaction process.”
Lawyers for Warner Bros. Discovery responded Thursday to Paramount’s letter, acknowledging that the company’s board had received the memo and would be responding in short order. “Please be assured that the WBD Board attends to its fiduciary obligations with the utmost care, and that they have fully and robustly complied with them and will continue to do so,” the note said.
Meanwhile, MAGA lawmakers have already expressed concern over Netflix seemingly becoming the frontrunner in the bidding war – and not the president’s preferred suitor.
“Learning about Netflix’s ambition to buy its real competitive threat — WBD’s streaming business — should send alarm to antitrust enforcers around the world,” Sen. Mike Lee (R-UT) tweeted on Wednesday night. “This potential transaction, if it were to materialize, would raise serious competition questions — perhaps more so than any transaction I’ve seen in about a decade.”
