David Ellison, the CEO of Paramount, has launched a $108.4 billion hostile offer to acquire Warner Bros. Discovery in a bid to head off Netflix’s $82.7 billion (enterprise value) agreement announced on Friday.
Ellison, the son of Oracle founder Larry Ellison, told shareholders that Netflix’s deal (valued at $72 billion on an equity valuation) was an “inferior proposal” in a direct appeal to Warner’s shareholders. David Ellison said his coalition, which includes Middle Eastern sovereign wealth funds and Donald Trump’s son-in-law Jared Kushner, will have $18 billion more in cash in its offer than Netflix’s cash-stock agreement.
David Ellison said the deal was backed by his family and RedBird Capital, as well as the wealth funds from Saudi Arabia, Qatar, Abu Dhabi, and Jared Kushner’s Affinity Partners. David Ellison could have an advantage with the higher price as well as his family’s political connection to Donald Trump, who said on Saturday there could be antitrust problems with Netflix’s bid. Netflix would combine its No. 1 streaming service with Warner’s No. 3 HBO, resulting in greater monopoly power concentration in the streaming market.
In the Netflix deal, Warner Bros., HBO and HBO Max will become part of Netflix while Warner Bros. Discovery’s cable networks division will be spun out as a separate public company. That includes TNT, CNN, HGTV, the Food Network and Discovery. Netflix declined to comment for this story beyond what it said last week here.
While games is a side conversation here, the implications of the deal are important not only for all of entertainment, but for gaming as well. Netflix has been moving into games and Warner Bros. generates around $1.5 billion a year from gaming revenues based on its properties like Harry Potter, Batman and more. Skydance/Paramount also has a big presence in gaming.
“The Paramount offer for the entirety of WBD provides shareholders $18 billion more in cash than the Netflix consideration,” David Ellison said. “WBD’s Board of Directors recommendation of the Netflix transaction over Paramount’s offer is based on an illusory prospective valuation of global networks that is unsupported by the business fundamentals and encumbered by high levels of financial leverage assigned to the entity.”
The Paramount tender offer is for $30 per share, all in cash, a contrast to Netflix’s offer, which is a $27.75 mix of cash and some stock. Paramount is buying the whole company, while Netflix is paying for part of it. Paramount’s deal is a tender offer, meaning it will need to convince shareholders to sell their stock to it, rather than accept the Netflix offer.
“WBD shareholders deserve an opportunity to consider our superior all-cash offer for their shares in the entire company,” Ellison said. “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 which exposes shareholders to a mix of cash and stock, an uncertain future trading value of the Global Networks linear cable business and a challenging regulatory approval process.”
The Ellison team also sees $6 billion in cost-saving synergies between a combined Warner Bros. Discovery and Paramount, given duplicative operations on back office, finance, technology and infrastructure, while keeping creative teams intact. Netflix had estimated $2 billion to $3 billion in cost savings.
“We believe our offer will create a stronger Hollywood,” Ellison wrote. “It is in the best interests of the creative community, consumers and the movie theater industry. We believe they will benefit from the enhanced competition, higher content spend and theatrical release output, and a greater number of movies in theaters as a result of our proposed transaction.”