Paramount Skydance has begun what insiders are referring to as “Plan D” in an effort to challenge Netflix’s “successful” offer for Warner Bros. Discovery, according to The Post.
It includes emphasizing to investors the significant regulatory uncertainty surrounding the Netflix deal and how this might cause issues not only for the transaction but also for Netflix, according to sources involved in the discussions.
Option A, naturally, aimed to persuade WBD CEO David Zaslav and his board, headed by Samuel DiPiazza, that its $30-per-share, all-cash proposal for the whole company was better than Netflix’s $27.75 cash-and-stock offer for the Warner Bros. studio and HBO Max streaming platform.
The Netflix agreement, they point out, appears particularly problematic when considering that it is offering shareholders what seems to be an increasingly unrealistic $3 per share, especially as WBD prepares to sell its cable assets CNN, TNT, and Discovery in the spring.
Plan B included Paramount — led byDavid Ellison, his father, the co-founder of OracleLarry Ellison, and Gerry Cardinalefrom RedBird Capital — making a hostile offer to persuade WBD shareholders to accept their money (all in cash) and leave.
So far, it hasn’t worked, which is why the next step was “Plan C,” as initially reported by The Post, or their “Defcon 1” approach of potentially taking legal action against WBD to demonstrate that WBD is favoring an allegedly less competitive Netflix offer due to the relationship between the CEOs.Ted Sarandos and Zas.
Nobody enjoys legal disputes, which is why we’ve now introduced “Plan D,” reportedly about taking a long-term approach, staying in the background by saying, “I told you so,” once the figures supporting the Netflix deal start to decline and it becomes clear that Netflix will face a challenging path at best for approval from the Trump administration.
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Additionally, and here’s the key point: Netflix’s entire business strategy could face investigation if it proceeds with this agreement.
Consider: The Ellisons and Cardinale are contending that the stock component of the Netflix agreement continues to decrease in value and might not rebound.
Since reaching its one-year peak in June, Netflix has seen a $160 billion decline in market value as the competition continued. Investors are clearly worried about Sarandos and the company’s founder.Reed Hastingspurchasing an item they don’t genuinely need and may not afford, considering the $60 billion in debt associated with their proposal.
They are also amplifying concerns that the WBD cable spinoff could be nearly valueless as investors consider its significant debt burden in addition to the declining viewership caused by cord-cutting.
The way the Paramount Skydance representatives described it, WBD has added so much debt to the balance sheet of its cable division ($15 billion) that they might barely (if fortunate) offer investors $1 per share in addition to the $27.75.
In the meantime, if WBD and Netflix transfer some of that debt from the cable properties to the studio and streaming divisions that Netflix is acquiring, it would create significant disruption in the metrics of its $27.75 cash-stock proposal.
But wait, there’s more
Indeed, it’s quite intricate, which is whyMario Gabelli, the well-known value investor and WBD shareholder, mentioned to me that Netflix’s deal needs to be made simpler because “cash is king,” which is also the reason he appreciates what the Ellisons and RedBird contribute.
Next is the regulatory complexity, which has become even more evident after a recent discussion I had with a high-ranking official from the Trump administration.
Netflix and Warner Bros. Discovery would be merging the top and third leading streaming platforms, as we all know.
It is under review by the Trump administration and may face a legal challenge to halt it.
It is a lengthy, costly, and unpredictable procedure in which the worth of the asset and returns to shareholders may decline.
However, consider what this could imply for Netflix: it’s not only the deal that might be restricted, but its entire business approach could come under scrutiny by the DOJ’s antitrust division or various other regulatory bodies, as I’ve been informed.
As a high-ranking official from the Trump administration stated, the streaming company has been under scrutiny by Trump’s various regulatory bodies for its significant market control in an industry that has become a popular way for many, if not most, consumers to watch content.
This might elevate the examination to a higher degree, similar to the legal challenges experienced by Amazon or Google.
“Indeed, this deal will undergo review, but there is now more discussion among DC regulatory and competition officials regarding examining Netflix’s potential monopoly position,” the regulator stated.
When you find yourself in the DC regulatory spotlight, that’s what occurs.
A representative from Netflix has not responded to my phone calls for commentary and did not do so this time either.
Of course, based on my understanding, WBD is really looking for a “Plan E,” which would involve the Ellisons and Cardinale contributing more funds.
It is possible, of course, as the Ellisons and RedBird have the resources.
They also strongly desire WBD as a means to transform a mid-sized media company into a significant player.
Nevertheless, the mere fact that they are discussing a “Plan D” suggests they may not implement any further incentives, possibly withdraw and let this deal fall into the hands of regulatory authorities.
That would be the most unfavorable outcome for investors.