Full text:
"Greetings from Los Angeles and welcome back to In the Room. Last Friday, after I published my latest missive on David Ellison’s presumptive all-cash bid for Warner Bros. Discovery, a well-placed Hollywood source called to suggest to me that Netflix was also considering a bid for David Zaslav’s assets. This once-implausible scenario had already gained some traction in the analyst community, and I’ll concede that my imagination started running wild when Ted Sarandos showed up with Zaz at the Crawford–Álvarez fight in Las Vegas the next night.
It seems hard to imagine—maybe Netflix would want the studio and streaming division—but the whispers, themselves, are indicative of this feverish new era of M&A activity, catalyzed in large part by Ellison’s entry into the space. Ellison’s seemingly limitless cash and ambition have accelerated Hollywood’s consolidation process, and his decision to bid for all of WBD now—in an attempt to preempt potential rivals—is forcing nearly everyone to dust off their models.
NBCUniversal, which is in the worst position to acquire Zaz’s assets from a regulatory perspective, spent the weekend “running the numbers on WBD,” per a source familiar, though a Comcast source cautioned that such a takeover was implausible, especially as it was spinning off Versant. (Reps for Netflix and Comcast did not comment.)
So, in tonight’s issue, I hand the reins to my partner Bill Cohan to assess the latest deal philosophies regarding the Ellisons’ unsolicited takeover bid, as well as the view from Zaz and the WBD board."
"Welcome to Dry Powder. I’m William D. Cohan. Happy FOMC Day to all who celebrate. Today, I’ve got more on the potential deal psychology surrounding David Ellison’s supposedly forthcoming (and still unannounced) bid for Warner Bros. Discovery, which would pit his seemingly endless family money against David Zaslav’s lingering Hollywood ambitions.
The universe of other options may be out there, but when your dad is worth $360 billion, logic is more of a suggestion than a rule. And Zaz, even with his coveted V.I.P. status at the Polo Lounge and the board on his side, may have no choice but to take the money and run."
(continued...)
"Of course, just because someone is working on a deal for a company, and it leaks to The Wall Street Journal, doesn’t mean a term sheet is coming all that soon. Putting together an unsolicited bid takes time, which is probably why it’s late Wednesday and David Ellison has yet to bid on Warner Bros. Discovery. After all, this deal would be plenty complicated no matter how you slice it. First, it’s only been a month since the Ellisons and RedBird Capital took control of Paramount Skydance. Yes, they’ve had more than a year to contemplate what they would do with these assets, but that’s quite different from actually having the reins, making things happen, and implementing a new strategy. Meanwhile, two months have passed since the rumors started percolating that Paramount Skydance was going to acquire Bari Weiss’s The Free Press for around $150 million, and that deal has yet to be finalized and announced. Even at Sun Valley, few things happen overnight.
At the moment, WBD has an equity market value of nearly $45 billion, thanks to a 42 percent increase in the company’s stock price during the past five trading sessions, following the Journal report that the Ellisons were preparing their unsolicited bid for the company. WBD also has around $30 billion of net debt, giving the company a total enterprise value of $75 billion. (You will recall that in April 2022, Discovery Communications paid around $100 billion for WarnerMedia alone. But we’ll leave that difficult fact for another day.) Paramount Skydance, for its part, has an equity value of almost $20 billion, up 18 percent since the news leaked. The company’s enterprise value is around $30 billion, including about $10 billion of net debt.
Normally, a $30 billion company would not be able to swallow a $75 billion company without doing the kind of Reverse Morris Trust transaction that Discovery deployed to buy WarnerMedia. (The deal essentially gave David Zaslav control while preserving AT&T shareholders as majority owners.) But it’s pretty much impossible to execute a Reverse Morris in an all-cash deal, as Ellison is reportedly contemplating.
I’m not sure if the Ellisons are planning to pay more per share than the roughly $18 that WBD already trades for, following the massive increase in the past few days. They certainly don’t have to. But to seal the deal, they might want to give Zaz the satisfaction of thinking he got them to pay a bit more. (Every $1 per share increase in the WBD stock is about $2.5 billion.) If the Ellisons were to end up paying, say, $22 a share, as Rich Greenfield at LightShed Partners predicted, that would equate to roughly $55 billion in cash required to buy the equity, while assuming the $30 billion of WBD’s debt. Under normal circumstances, this deal might be considered dead on arrival.
But, of course, the reason we are even taking this seriously is because David’s father is Larry Ellison, with a current net worth of $365 billion (up $173 billion alone in 2025) and an apparent desire to bankroll his son’s Hollywood aspirations. I have no inside knowledge of the liquidity of Larry’s wealth, but I assume he can come up with the fresh $55 billion to buy WBD, either by selling his Oracle stock or some of his real estate assets in Hawaii and Florida; or by exercising the revolver on a line of credit from the likes of Apollo, Blackstone, Ares, or KKR; or through a margin loan from a consortium of big Wall Street banks. He’ll get the money if he wants to do this deal. Whether there would be a negative impact on Oracle’s stock remains to be seen. But I kind of doubt it, since Larry still owns some 40 percent of the company.
With Drexel’s “Highly Confident” letters a relic of the past—and discredited, in any event—it will probably take even Larry Ellison some time to get the financial backing together. And yet, stock market investors are not waiting for the proof of the Ellisons’ interest in WBD; they are driving up the WBD stock first, and asking questions later."
"Zaz Deal Psychology
The Wall Street research analysts are also having a field day with the prospects of the deal, as you would expect. Our old friend Steven Cahall, at Wells Fargo, just came out with his third WBD-related report in a week. He wrote that he does not expect WBD stock price to move much beyond $19 a share, unless “a competitive situation arises,” with the “key question” being whether firms like Netflix, Amazon, and Apple “enter the fray.” (This is not investment advice.)
His conclusion, like mine, is that neither Apple nor Amazon will go for all of WBD. Netflix might be interested in Zaz’s streaming & studios business, which would be split off from the mothership under the plan that will take effect next April. But as I discussed on Sunday, Zaz would need to convince his board and WBD shareholders that there would be more value coming from the split than from the Ellisons—that two in the bush is worth more than a bird in hand.
That’s a tough argument, especially given the increase in the WBD stock. It’ll require plenty of PowerPoint presentations and investment banker hours crafting a thesis that will be hard for WBD’s shareholders to swallow, although I’m sure WBD’s board, including the new trio of Joey Levin, Anthony Noto, and Anton Levy, will support Zaz.
In any case, it’s going to be a rough process for Zaz, even with his M&A street cred and his hopes to gin up a serious auction. “No investor we have talked to believes WBD C.E.O. David Zaslav and the WBD Board of Directors could vote NO on a Paramount bid, assuming a $20+ offer, with the vast majority in cash (leveraging the Ellison family fortune),” Rich Greenfield wrote on Monday. He doesn’t even think Comcast or Disney or Fox can compete with Larry Ellison, although in a new piece on Tuesday, he described Comcast/NBCU as “the only realistic dark horse,” an idea I’ve been championing for a few years now. Rich added that saying no to Paramount could be perceived as “complete and utter insanity.”
Yes, he conceded that there was a post-split bidding war argument. And, of course, he noted that Zaz does visibly love his Polo Lounge status. “We simply do not believe Zaslav wants to sell now and give up one of the most coveted jobs in Hollywood, especially when he feels he is on the cusp of unlocking shareholder value through the split,” Rich continued. “Not to mention, Zaslav’s belief that while it has taken time for his management changes to positively impact studio results, it is finally starting to happen.”
But, in the end, Rich knows what has to happen here, assuming the Ellisons are serious. “Take the money and run,” he concluded. He’s not wrong."
deadline.com
apnews.com
