As the high-stakes auction for Warner Bros. Discovery nears its end, Paramount is crying foul, alleging the process was tipped in favor of a competing bidder: Netflix.
In a scorching letter sent to Warner Bros. Discovery Chief Executive David Zaslav late Wednesday, Paramount’s lawyers accused Zaslav’s company of not playing fair. Paramount’s acrimonious allegations exposed a deep rift between the two companies’ leaders after weeks of rising tensions.
“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,” attorneys for Paramount wrote, referring to Netflix.
Early on, the Larry Ellison-family controlled Paramount appeared to have the best chance to win Warner Bros. Discovery. Paramount launched its campaign to buy the larger media company, which owns HBO and CNN, in September, one month after the Ellisons’ Skydance Media wrapped up its $8-billion purchase of Paramount and moved into the studio’s historic Melrose Avenue lot.
But Warner Bros. Discovery’s board rejected Paramount’s overtures, saying its bids were too low. In late October, the board opened the sale up to other bidders, allowing Netflix and Comcast, which owns NBCUniversal, to jump in.
Warner’s board is continuing to evaluate the various proposals, according to a knowledgeable person who was not authorized to comment. Bidders were asked to submit updated proposals by the end of the day Thursday.
People close to the process said the ground seemed to shift beneath Paramount, allowing Netflix, which has offered a largely cash bid, to gain an edge.
Netflix’s bid amount is unclear. Analysts have suggested that the streamer, which has a strong balance sheet, could pay as much as $70 billion for Warner’s film and television studios, HBO and HBO Max streaming service — giving the Los Gatos firm an unmatched programming arsenal. The deal would bestow Netflix with rights to Batman, Harry Potter, Scooby-Doo, “The Lord of the Rings” and such acclaimed television shows as “The Pitt,” “Game of Thrones” and “The White Lotus,” and video games including “LEGO” and “Mortal Kombat.”
Netflix has not shown interest in buying Warner’s basic cable channels, including CNN, HGTV, TNT and Food Network.
Initially, analysts felt the Ellison family’s wealth — Larry Ellison is one of the world’s richest men — and its warm relations with President Trump gave it the upper hand. The Ellison family’s ease in gaining Trump and regulators’ approval last summer for its purchase of Paramount suggested that they would also be afforded a quick and smooth regulatory approval in the U.S. for their hoped-for Warner Bros. takeover.
Trump weighed in, saying Paramount should win the prize, allowing the Ellisons to control CBS News as well as CNN.
“Larry Ellison is great, and his son, David, is great,” Trump told reporters in mid-October. “They’re big supporters of mine.”
However, the prospect of the Ellisons gaining such a huge swath of U.S. media did not sit well with foreign leaders wary of Trump, according to a person close to the auction who was not authorized to speak publicly. Concerns grew after British newspaper the Guardian reported that White House officials had informally discussed with Larry Ellison CNN anchors that Trump disliked and wanted fired should Paramount succeed in buying Warner. The newspaper attributed the information to anonymous sources.
Paramount’s letter cited a recent meeting that Warner international executive Gerhard Zeiler had in Brussels with European Commission officials “to discuss the potential merger prospects” for Warner. E.U. Commission Vice President Henna Virkkunen attended the meeting.
During that meeting, “concerns were raised that the Ellison family’s planned acquisition of Warner Bros. Discovery could lead to excessive media concentration and that the E.U. Commission would consider intervening in a potential merger with Paramount for this reason,” according to Paramount’s letter, pointing to a report in a German newspaper about the meeting.
“The implications of such a meeting, if it occurred, are clear and evince a tacit resistance to, if not active sabotage of, a Paramount offer,” Paramount wrote.
Warner Bros. Discovery defended its conduct Thursday. Lawyers for the company responded to Paramount saying that, as requested, it shared the letter with Warner board members.
“Please be assured that the WBD Board attends to its fiduciary obligations with the utmost care, and they have fully and robustly complied with them and will continue to do so,” the Warner lawyers wrote.
In its letter, Paramount said other media reports have mentioned Warner Bros.’ “enthusiasm” over the prospect of teaming with Netflix to create a streaming and traditional media behemoth.
Netflix co-Chief Executive Ted Sarandos and Zaslav are friendly; they sat together at a September Canelo Alvarez boxing match in Las Vegas.
“Paramount has a credible basis to believe that the sales process has been tainted by management conflicts,” Paramount wrote in its letter, pointing to “certain members of management’s potential personal interests in post-transaction roles and compensation as a result of the economic incentives embedded in recent amendments to employment arrangements.”
Warner’s board adjusted Zaslav’s contract in November, a week before the first-round bids were due, to clarify his compensation should the company spin off its studios and HBO. Such an arrangement would make it easier for Netflix (or Comcast) to acquire the assets they want.
Netflix declined to comment on its bidding prospects or the letter from Paramount.
Paramount’s letter suggests the company will not go away quietly.
“We remain confident that the Paramount offer would provide the maximum value to WBD stockholders and look forward to the opportunity to continue to engage with you productively in this process,” Paramount’s attorneys wrote. “But at this point we must insist on assurances and steps taken to ensure that a truly fair and independent process is being conducted, both for Paramount’s benefit and in the interest of WBD’s stockholders.”
