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Hostile bidders generally have three tools at their disposal when attempting to sway a reluctant target: money, rhetoric and timing. Paramount Skydance boss David Ellison is using all three in his attempt to take over Warner Bros Discovery.
Paramount modestly improved its offer for the reluctant WBD on Tuesday, hoping the WBD board will abandon its previously agreed sale to streaming colossus Netflix. The price on offer, $30 a share, is unchanged, valuing WBD at $108bn including debt. But Ellison has now agreed to cover a “termination fee” WBD would have to pay for changing course, equivalent to around $1 per share.
On top of that, Paramount has proposed a so-called “ticking fee” if its offer takes longer than next January to close. That’s not uncommon in deals with many regulatory I’s to be dotted and T’s to be crossed. Budget airline JetBlue offered a ticking fee when it tried to acquire Spirit Airlines; so did TD Bank in its bid for First Horizon. Neither deal ultimately succeeded.
Why not, though, simply offer more money up front? That would be the most straightforward way to shame WBD chief David Zaslav and his board into opening up talks. Paramount can afford to do so, too. Lex reckons it could pay $34 a share and still create value for its own shareholders. But Ellison presumably thinks there is value in keeping his powder dry.
This is not a bad plan. For one, WBD might yet capitulate. True, the bar for this is high: a “no shop” provision prohibits its board from jilting Netflix unless there’s a real chance of a superior offer. Since Netflix’s bid does not include WBD’s cable-TV assets whereas Paramount’s is for the whole company, the two bids are only imperfectly comparable. WBD directors can therefore argue “superiority” is in the eye of the beholder.
Nonetheless, experienced bargain hunters rarely make their best offer first. Paramount has been floating incrementally improved proposals, tweaking its financing and other features in response to WBD’s objections, perhaps to gauge the exact level at which its directors will feel pressed to engage. Ellison has plenty of time to slap more cash on the table, since WBD shareholders do not vote on the Netflix deal until March at the earliest.
In this case, waiting confers another advantage. Netflix’s bid hinges on the value of that cable-TV unit, which will be handed to WBD shareholders as stock in a new company. But shares in the spin-off’s closest listed peer, Versant Media, have slumped by one-third this year so far. WBD argues that its own cable business is better. But the further Versant falls, the more appealing Paramount’s cash alternative looks.
If nothing else, holding fire on a higher bid gives Ellison and his co-investors more time to try another approach: talking down their rival. In particular, Paramount argues its bid has more chance of passing muster with antitrust watchdogs. Absent a regulatory pronouncement, the truth of that is unknowable. But it’s worth a try — even if the most likely outcome remains Ellison reaching into his back pocket.
john.foley@ft.com
