Paramount CEO David Ellison wined and dined David Zaslav and texted him over the course of six offers to acquire Warner Bros Discovery (WBD), culminating in this week’s hostile bid, corporate documents reveal.
An SEC (Securities And Exchange Commission) filing by Paramount on Tuesday outlined the chronology of Ellison’s efforts to secure all of WBD, including a text the young mogul sent to Zaslav last week (December 4) that read: “It would be the honor of a lifetime to be your partner and to be the owner of these iconic assets.”
Little did Ellison know at the time that on the same day Zaslav and his board were about to announce they had agreed to an offer from Netflix to buy WBD’s studios and streaming assets.
Up until that point Ellison and his company had made five bids – starting on September 14 for $19 per share comprising 60% in cash and 40% in shares of Paramount Class B Common Stock, backstopped by Paramount’s principal equity holders including Ellison’s father, the Oracle centibillionaire Larry Ellison.
Beverly Hills meeting
The Ellisons met Zaslav at his Beverly Hills home that day to sell the deal. However over a week later, on September 22, Zaslav wrote to David Ellison rejecting the offer as “inadequate” .
“Paramount made six proposals over twelve weeks to the Warner Bros. board,” Paramount officers noted in Tuesday’s filing. “The first proposal was made when Warner Bros. common stock was merely $12.57 per share (having traded as low as $7.52 in the months earlier).”
It continued: “Each Paramount proposal increased its offered value (with the final two being 100% cash) culminating in the all cash offer of $30 per share.” The filing added that the WBD board did not reply after Paramount’s most recent offer dated December 4 and, in a reference to the Netflix bid, claimed the WBD board committed shareholders to “an obviously financially inferior transaction with extraordinary regulatory risk and a longer timeline to a possible closing”.
Ellison made successive offers that were rejected on September 30, October 13, and November 20, when it offered $25.50 per share, comprising 85% in cash and 15% in shares of Paramount Class B Common Stock.
On that occasion Ellison promised equity commitments from “certain affiliates and partners of Paramount” amounting to $34.5bn in cash, and said the Ellison family and RedBird were willing to underwrite the full equity funding requirements. The reverse termination fee, a penalty that Paramount would pay to WBD should the deal fail to close, went up to $5bn, $3bn more than the first fee of $2bn offered on September 30.
WBD rejected the offer on November 22 on the grounds that it was not sufficiently compelling in light of other offers. Two days later David and Larry Ellison dined with Zaslav, and on November 25 WBD asked Paramount to sign a written, binding proposal.
On December 1 Paramount proposed buying $26.50 per share in its first all-cash proposal that included signed debt commitment letters to the amount of $50bn, including an $11.8bn commitment from the Ellison family, an aggregate $24bn commitment from three Gulf sovereign wealth funds, a $1bn commitment from China’s Tencent, and commitments from RedBird Capital Partners and Affinity Partners.
WBD concerns over foreign equity finance sources
On December 3 Zaslav called Ellison to say WBD was asking all bidders to address various matters, citing concern in the case of Paramount over the equity backstop in its offer. Zaslav and the WBD board were concerned that foreign equity finance sources with governance rights could trigger a review by CFIUS (Committee on Foreign Investment In the United States), an interagency US government body that reviews potential national security risks of foreign investments into the United States.
Paramount told WBD it thought the process was leaning towards Netflix, noting a report in the German newspaper Handelsblatt and a meeting between senior representatives of WBD and regulatory officials of the EU citing concern over the Paramount bid.
Ellison sent a revised, second all-cash, bid on December 4 offering $30 per share, valuing WBD equity at $77.9bn, rising to an enterprise value of $108.4bn including debt and noncontrolling interest.
It also said that the Ellison family and RedBird had collectively committed to backstop 100% of the $40.7bn of equity capital required for the transaction; that Tencent would no longer be a financing partner; and that the three Gulf sovereign wealth funds – the Public Investment Fund (Kingdom of Saudi Arabia), L’imad Holding Company PJSC (Abu Dhabi), Qatar Investment Authority (Qatar), and Jarde Kushner’s Affinity Partners – would forgo governance rights and board representation.
Laster that day Ellison sent Zaslav a text that read: “Daivd [sic] I appreciate you’re underwater today so I wanted to send you a quick text. Please note when you next meet as a board we wanted to offer you a package that addressed all of the issues you discussed we [sic] me. Those were 1 we wanted to offer complete certainty 2 strong cash value 3 speed to close.”
The text continued: “Please note importantly we did not include “best and final” in our bid. Also please know despite the noise of the last 24 hours I have nothing but respect and admiration for you and the company. It would be the honor of a lifetime to be your partner and to be the owner of these iconic assets. If we have the privilege to work together you will see that my father and I are the people you had dinner with. We are always loyal and honorable to our partners and hope we have the opportunity to prove that to you. Best, David”.
But Paramount said Zaslav had not replied, and the following day, on December 5, WBD and Netflix announced that they had a deal, Ellison’s team worked over the weekend and returned with the hostile bid on December 8, which circumvented the WBD and went straight to the shareholders.
That day David Ellison texted Zaslav saying: “Just tried calling you about new bid we have submitted. I heard you on all your concerns and believe we have addressed them in our new proposal. Please give me a call back when you can to discuss in detail.”
WBD said it had received the offer and would reply within 10 business days.
Financial experts are divided over the bids. Some have argued that Netflix’s accepted $27.75 per share cash and stock bid faces greater regulatory hurdles, while Paramount, despite its “cleaner”, $30 per share all-cash offer, has now been rebuffed six times by WBD.
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