Paramount Skydance believes it finally has the upper hand in its race against Netflix to acquire Warner Bros. Discovery – partly because it believes the Netflix deal is unraveling on its own, On The Money has learned.
The owner of Paramount and CBS’s brain trust – whose bosses David and Larry Ellison on Thursday reaffirmed their commitment to a merger with WBD – are citing a series of self-inflicted wounds by WBD as it has rejected PSKY’s current “hostile” offer for the company worth $30 a share, or $78 billion, sources said.
This week, WBD lamented that Ellison & Co.’s deal relies on $85 billion in debt, slamming it as a “leveraged buyout” as it demanded that Larry Ellison guarantee that debt in addition to the $40 billion in equity he has guaranteed.
But for that beef to be considered legitimate, the PSKY camp retorts, you have to believe that some of the nation’s biggest banks, Citigroup and Bank of America, will blow the whole deal up and walk away after giving assurances they won’t.
Meanwhile, take a closer look at the Netflix deal, which amounts to $27.75 a share in cash and Netflix stock. To get it over the hump, there’s a promise of another $3 a share on the planned sale of WBD’s cable properties that it isn’t buying, CNN, TNT, Discovery and the like.
WBD’s channels are getting squeezed by cord cutting. PSKY points to a new company called Versant, the spinoff of Comcast composed of CNBC, MS NOW (formally MSNBC) E! and others. Since it launched earlier this week, Versant’s stock is down nearly 30%.
Here’s the pitch RedBird Capital’s banker Gerry Cardinale is making to investors: If you assume the WBD spinoff “trades in line” with Versant, which has little debt compared to the $15 billion on the WBD “spinco,” the numbers show it should be valued at next to nothing.
Add to that the fact that Netflix is paying a piece of its offer in its own stock, which too has been getting clobbered, losing more than $150 billion in value during the monthslong drama. Investors, it seems, don’t like the fact that CEO Ted Sarandos and founder Reed Hastings are doing a 180 on their business model, which until now has grown without any big acquisitions.
Then there are the antitrust implications of coupling the No 1. streamer in Netflix with the No. 3 streamer in WBD’s HBO Max – and of course, the long friendship between Larry Ellison and the guy who will likely call the antitrust shots on the deal, President Trump.
As for PSKY’s all-cash bid: It hasn’t increased amid this week’s back and forth, but it seems they’re getting a few converts anyway. Among them is famed value investor Mario Gabelli. In an interview with Fox Business’s Teuta Dedvukaj this week, Gabelli noted, “Cash is king…$30 in cash is a better deal.”
To be sure, David Zaslav, the boss of WBD, is an amazing chief executive. Last year alone, he chopped debt as he built Warner Bros. studios into Hollywood’s best. He fixed HBO Max and made it competitive. When David Ellison proffered a bid in September worth $19 in cash and stock, Zaslav engineered a bidding war that sent WBD’s value into the stratosphere.
He’s probably looking for more out of the Ellisons and Cardinale, which is why he’s dancing with Netflix. But Zaslav just might have to settle with what he has.
