“The biggest challenge to take away from past M&A in media is the environment moves really quickly, and so you want to get these deals done as quickly as possible to be able to implement a strategy. If you wait two years, or two-and-a-half years … the ecosystem’s changed a lot,” said Naveen Sarma, Managing Director and Sector Lead for U.S. Media and Telecom at giant ratings agency S&P Global.
“We’ve seen a lot of deals not work out because of things like that. The ecosystem moves faster than companies are able to react,” he said during a Q&A at the UBS media conference in New York when asked to opine on the current battle for Warner Bros. Discovery.
WBD, which put itself up for sale in October, inked a deal Friday to sell its studios and HBO Max to Netflix for $27.75 in cash and stock. Paramount, which had six successive bids for all of WBD rebuffed, announced a hostile tender offer Monday morning of $30 in cash for the whole company. WBD has ten days to respond.
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Wall Street and Hollywood have been gaming out the scenarios with Sarma telling the UBS audience that Netflix “has a lot more capacity … and they’d be able to increase a bid if they need to. And we’ll see what Paramount does. They certainly have a lot less capacity to do that, although … if it’s David Ellison reaching back to his dad and asking for more stock, that’s more capacity.”
Dad is Larry Ellison, Oracle co-founder and one of the world’s richest people. The equity portion of the Paramount bid includes three Middle East sovereign wealth funds and Jared Kushner’s investment firm Affinity Partners. But the Ellison Trust is backstopping it all, meaning financing is guaranteed.
There’s less risk to Netflix in waiting it out than Paramount, notes one Wall Streeter, given the latter’s exposure to declining linear television. “In two years, Netflix will still pretty much be Netflix,” he said.
But David Ellison has been pounding the table with assurances that Paramount has a fast and secure path to approval. The Department of Justice will be reviewing the deal. He’s been laying out his case aggressively over the past 24 hours in the public tender offer, at a press conference, on CNBC and in well attended private meetings at UBS, although he backed out of a previously scheduled main stage Q&A. He’s trying to convince investors to tender their shares. There’s a January 8 deadline to do that but it can be extended.
Giant streamer Netflix plus HBO Max poses obvious antitrust issues, Ellison says. Netflix says streaming video is a much broader market with rivals like YouTube, TikTok and more. Netflix co-CEOs Ted Sarandos and Greg Peters appeared on Monday at UBS, which was particularly well timed this year, to talk up their offer and said they are confident it will close.
Observers, including Candle Media’s Kevin Mayer, the former top Disney executive and TikTok CEO who spoke earlier today, don’t anticipate smooth sailing, however, but, as Mayer, said “fireworks.”
That could mean escalating offers, a Paramount lawsuit, a proxy fight, or all three.
Sarma was among the first to publicly call out risks to Paramount’s credit-worthiness at the same UBS event in late 2023 before it was acquired by Skydance. A year ago, he predicted upheaval at the company, which had inked but not closed the deal.