Netflix and Paramount are locked in an epic tug-of-war for HBO and Warner Bros. — the historic film factory behind Batman, Harry Potter, Scooby-Doo, “Casablanca” and “The Matrix.”
Warner Bros. Discovery awarded the prize to Netflix, prompting Paramount to mount a hostile takeover bid valued at $108 billion for all of the Warner assets, which also include CNN, TBS, HGTV and TLC. The Larry Ellison-backed media company, run by his son David Ellison, has asked Warner shareholders to sell their shares to Paramount.
Warner Bros.’ sale has become the industry’s game of thrones.
The streaming king, Netflix, hopes to buy a chunk of the company — HBO, HBO Max, Warner Bros. film and TV studios and the 110-acre lot in Burbank — through its $82.7-billion deal. Not included are Warner’s basic cable channels, which are set to be spun off into a separate, publicly-traded company called Discovery Global.
Both deals would fundamentally reorder Hollywood and raise antitrust concerns. Netflix would boast more than 400 million subscribers worldwide, furthering its market dominance. And Paramount’s takeover would combine two major film studios and two leading news organizations, CNN and CBS News, under Ellison family control.
Warner Bros. Discovery has sharply rejected Paramount’s latest offer, alleging the Larry Ellison family has failed to put real money behind Paramount’s $78-billion bid for Warner’s legendary movie studio, HBO and CNN.
Paramount “has consistently misled WBD shareholders that its proposed transaction has a ‘full backstop’ from the Ellison family,” Warner Bros. Discovery’s board wrote in a Wednesday letter to its shareholders filed with the Securities & Exchange Commission.
“It does not, and never has,” the Warner board said.
For Warner, what was missing was a clear declaration from Paramount that the Ellison family had agreed to commit funding for the deal. A Paramount representative was not immediately available for comment Wednesday.
The Warner auction has taken a nasty turn. Last week, Paramount launched a hostile takeover campaign for Warner after losing the bidding war to Netflix. Warner board members unanimously approved Netflix’s $72-billion deal for the Warner Bros. film and television studios, HBO and HBO Max.
In its letter, the Warner board reaffirmed its support for Netflix’s proposal, saying it represented the best deal for shareholders. Warner board members urged investors not to tender their shares to Paramount.
Board members said they were concerned that Paramount’s financing was shaky and the Ellison family’s assurances were far from ironclad. Warner also said Paramount’s proposal contained troubling caveats, such as language in its documents that said Paramount “reserve[d] the right to amend the offer in any respect.”
The Warner board argued that its shareholders could be left holding the bag.
Paramount Chief Executive David Ellison has argued his $78-billion deal is superior to Netflix’s proposal.
(Evan Agostini / Evan Agostini/invision/ap)
Paramount Chairman David Ellison has championed Paramount’s strength in recent weeks saying his company’s bid for all of Warner Bros. Discovery, which includes HBO, CNN and the Warner Bros. film and television studios, was backed by his wealthy family, headed by his father, Oracle co-founder Larry Ellison, one of the world’s richest men.
In its letter last week to shareholders, asking for their support, Ellison wrote that Paramount delivered “an equity commitment from the Ellison family trust, which contains over $250 billion of assets,” including more than 1 billion Oracle shares.
In regulatory filings, Paramount disclosed that, for the equity portion of the deal, it planned to rely on $24 billion from sovereign wealth funds representing the royal families of Saudi Arabia, Qatar and Abu Dhabi as well as $11.8 billion from the Ellison family (which also holds the controlling shares in Paramount). This week, President Trump’s son-in-law Jared Kushner’s Affinity Partners private equity firm pulled out of Paramount’s financing team.
Paramount’s bid would also need more than $60 billion in debt financing.
Paramount has made six offers for Warner Bros., and its “most recent proposal includes a $40.65 billion equity commitment, for which there is no Ellison family commitment of any kind,” the Warner board wrote.
“Instead, they propose that [shareholders] rely on an unknown and opaque revocable trust for the certainty of this crucial deal funding,” the board said.
Throughout the negotiations, Paramount, which trades under the PSKY ticker, failed to present a solid financing commitment from Larry Ellison — despite Warner’s bankers telling them that one was necessary, the board said.
“Despite … their own ample resources, as well as multiple assurances by PSKY during our strategic review process that such a commitment was forthcoming – the Ellison family has chosen not to backstop the PSKY offer,” Warner’s board wrote.
Board members argued that a revocable trust could always be changed. “A revocable trust is no replacement for a secured commitment by a controlling stockholder,” according to the board letter.
David Ellison has insisted Paramount’s Dec. 4 offer of $30 a share was superior to Netflix’s winning bid. Paramount wants to buy all of Warner Bros. Discovery, while Netflix has made a deal to take Warner’s studios, its spacious lot in Burbank, HBO and HBO Max streaming service.
Paramount’s lawyers have argued that Warner tipped the auction to favor Netflix.
Paramount, which until recently enjoyed warm relations with President Trump, has long argued that its deal represents a more certain path to gain regulatory approvals. Trump’s Department of Justice would consider any anti-trust ramifications of the deal, and in the past, Trump has spoken highly of the Ellisons.
However, Warner’s board argued that Paramount might be providing too rosy a view.
“Despite PSKY’s media statements to the contrary, the Board does not believe there is a material difference in regulatory risk between the PSKY offer and the Netflix merger,” the Warner board wrote. “The Board carefully considered the federal, state, and international regulatory risks for both the Netflix merger and the PSKY offer with its regulatory advisors.”
The board noted that Netflix agreed to pay a record $5.8 billion if its deal fails to clear the regulatory hurdles.
Paramount has offered a $5 billion termination fee.
Should Warner abandon the transaction with Netflix, it would owe Netflix a $2.8 billion break-up fee.
Warner also pointed to Paramount’s promises to Wall Street that it would shave $9 billion in costs from the combined companies. Paramount is in the process of making $3 billion in cuts since the Ellison family and RedBird Capital Partners took the helm of the company in August.
Congressional Democrats are sounding alarms over the deep involvement of Saudi Arabian and other Middle Eastern royal families in Paramount’s proposed bid for Warner Bros. Discovery.
Warner Bros. Discovery owns CNN, HBO and the historic Warner Bros. film and television studios in Burbank, behind such beloved American classics as “Casablanca,” “Citizen Kane,” and Bugs Bunny, and blockbuster hits including “Harry Potter,” “Dirty Harry,” “The Matrix,” and “Friends.”
Late last week, the Larry Ellison controlled Paramount came up short in the bidding for Warner Bros., in part, over the Warner board’s concerns about Paramount’s deal financing. On Monday, Paramount launched a hostile takeover of Warner Bros., appealing directly to Warner shareholders — asking them to sell their Warner stock to Paramount for $30 a share.
Paramount’s gambit has thrown the auction, and Warner board’s selection of Netflix’s $72-billion deal, into doubt.
Paramount has long insisted that it represents the best partner for Warner Bros., in part, because of the Ellison family’s cozy relations with President Trump. The company has trumpeted its ability to gain the blessing of the Trump administration.
Paramount’s bid is heavily backed by Saudi Arabia, Abu Dhabi and Qatar’s sovereign wealth funds. The three royal families have agreed to contribute $24 billion — twice the amount the Larry Ellison family has agreed to provide in financing for Paramount’s proposed $78-billion takeover of Warner Bros. Discovery, according to regulatory filings.
Trump son-in-law Jared Kushner’s private equity firm, Affinity Partners, would also have an ownership stake.
On Wednesday, U.S. Reps. Sam T. Liccardo (D-San Jose) and Ayanna Pressley (D-Boston) called on Warner Bros. board to recognize the consequences of selling the legendary company, which includes news organization CNN, to foreign governments.
“This transaction raises national security concerns because it could transfer substantial influence over one of the largest American media companies to foreign-backed financiers,” Liccardo and Pressley wrote.
“Warner’s platforms reach tens of millions of American households through HBO, Max, CNN, Warner Bros. Pictures, Discovery, and numerous digital and cable properties,” the lawmakers wrote. “They also shape the news, entertainment, and cultural content consumed by the American public.”
Transactions “foreign investors with governance rights, access to non-public data, or indirect influence over content distribution creates vulnerabilities that foreign governments could exploit,” the lawmakers wrote.
Paramount Chairman and Chief Executive David Ellison on the Paramount lot in August.
(Paramount)
Paramount, in its regulatory filings, said the three Middle Eastern families had agreed to give up voting rights and a role in the company’s decision-making — despite contributing more than half the equity needed for the deal.
Representatives of Warner Bros. and Paramount declined to comment.
The Ellison family acquired Paramount in August. David Ellison, the chief executive, attended a White House dinner last month to celebrate Saudi Crown Prince Mohammed bin Salman.
The involvement of bin Salman was concerning to the lawmakers.
“The fund is controlled by Crown Prince Mohammed bin Salman, whom (according to the declassified 2021 report of the U.S. Director of National Intelligence) ordered the murder of U.S. resident and Washington Post journalist Jamal Khashoggi,” the lawmakers wrote.
Over the weekend, Trump said the Netflix deal, which would give the streaming an even more commanding presence in the industry, “could be a problem.”
On Monday, a Las Vegas-based HBO Max subscriber sued Netflix over concerns that the streamer’s plans to buy some of Warner Bros. Discovery’s assets would create an anti-competitive environment in the entertainment industry and raise subscription prices.
Netflix said last week it agreed to buy Warner Bros. Discovery’s film and TV business, its Burbank lot, HBO and the HBO Max streaming service for $27.75 a share or $72 billion. It also agreed to take on more than $10 billion of Warner Bros.’ debt, creating a deal value of $82.7 billion.
Michelle Fendelander alleges in her lawsuit that if Netflix’s deal were to go through, it would decrease competition in the subscription streaming market. She is asking the court to issue an injunction to prevent the merger from happening or issue a remedy for the anti-competitive effects.
“American consumers — including SVOD purchasers like Plaintiff, an HBO Max subscriber — will bear the brunt of this decreased competition, paying increased prices and receiving degraded and diminished services for their money,” according to Fendelander’s lawsuit, which is seeking class-action status. The lawsuit was filed in a U.S. District Court in San Jose.
Netflix on Tuesday called the lawsuit “meritless” and “merely an attempt by the plaintiffs bar to leverage all the attention on the deal.”
The Los Gatos, Calif.,-based streamer is long seen as the winner of the subscription streaming wars, boosted by having successfully entered the streaming content space earlier than rivals and for its superior recommendation technology. By buying Warner Bros. Discovery’s assets, Netflix would gain access to more franchises and characters, including Batman, “Game of Thrones” and Harry Potter. Netflix said it plans to keep Warner Bros.’ commitments to bringing its movies to theaters.
But Fendelander and some industry observers are concerned that Netflix owning one of its streaming rivals will hurt the entertainment industry because it means less competition.
“The elimination of this rivalry is likely to reduce overall content output, diminish the diversity and quality of available content, and narrow the spectrum of creative voices appearing on major streaming platforms,” according to the lawsuit by Fendelander, who has never been a Netflix subscriber.
Streamers over the years have steadily raised their prices, and some analysts said they would not be surprised if subscription prices continued to go up.
Netflix executives said they believe their deal to acquire WBD’s assets will benefit key stakeholders.
“It’s going to mean more options for consumers,” said Netflix Co-CEO Greg Peters on a call with investors last Friday. “It’s going to be more opportunities for creators, more value for our shareholders. Together, we’ve got the chance to bring great stories, cutting edge innovation and more choice to audiences everywhere.”
Peters also pointed out at a UBS conference on Monday that Netflix combined with the assets it is acquiring from Warner Bros. Discovery would still amount to a smaller share of U.S. TV viewing than YouTube.
Whether the deal will get over the finish line remains to be seen, although Netflix executives say they believe it will. On Monday, Paramount said it would directly appeal to shareholders to offer an alternative bid.
