Warner repels the barbarians as Paramount's debt-fuelled bid is given the old heave-ho: ALEX BRUMMER
Warner Bros Discovery doesn’t know how lucky it is.
When chief executive David Zaslav posted a ‘for sale’ notice over the creative giant in October, he could not have expected a bidding war between the world’s most valuable entertainment group – Netflix – and one of the world’s richest people, Larry Ellison, the financier behind Paramount Skydance.
The Warner board, headed by Samuel Di Piazza, is again showing Paramount the door despite an offer of £81billion which, on paper at least, is way ahead of its £62bn agreed deal with streaming giant Netflix.
Di Piazza and the board know that, in price terms, the reverse takeover by Paramount, backed by a personal guarantee from Oracle founder Ellison, is the better offer – even if break fees and loan costs, put at £3.5billion by Warner, are considered.
So, it is changing the rules. In its latest rejection of Paramount’s bid, Warner is hanging its defence on ‘an extraordinary amount of debt financing’, describing it as the biggest leverage buyout in Wall Street history.
It is far larger than the audacious $25billion offer by private equity barons KKR for RJR Nabisco in the 1980s.
Hollywood legend: Warner Bros Discovery has urged investors to reject rival Paramount's new £81bn offer
At stake is Warner Bros’ prized studio and content library as well as lucrative rights to Harry Potter, Game of Thrones, Friends, DC Comics and much more.
Married to Paramount, also home to a vast library and streaming successes such as Yellowstone and the oil saga Landman, it would be a formidable global force.
The rejection of Paramount has drawn blood, with top ten investor Pentwater Capital Management demanding Warner engage with Paramount.
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Warner argues that Netflix’s cash-in-hand offer is less risky on a fast-changing media landscape. There also are regulatory hurdles to be cleared on both sides of the Atlantic.
One cannot imagine that the EU or Britain’s Competition & Markets Authority – both guarded about big tech’s ferocious power – will be keen on the Netflix deal.
Highly-indebted financialised bids have a nasty record of going wrong, as followers of the Thames Water and the Asda sagas would testify.
The presence of the Ellison family, which has a paper fortune of £250billion, on the Paramount letterhead, should provide some reassurance.
Sluggish justice
The City enforcer, the Financial Conduct Authority (FCA), has a full plate.
It is caught in a row over the scale of the car finance compensation scheme, with lenders shouting foul and claims managers promising victims rich rewards.
On its core function of delivering financial justice and keeping markets clean, it remains as snail-like as ever.
So much has happened since construction giant Carillion collapsed eight years ago with debts of £1.3billion, putting 43,000 jobs at risk and disrupting hospital and school services, that it is an almost forgotten scandal.
It is encouraging that the FCA relentlessly has pursued those responsible, delivering hefty fines to former finance directors Richard Adam and Zafar Khan, who allegedly acted recklessly by breaching rules.
Less satisfactory is that it has taken eight years, and even now there may be further hurdles to enforcement.
The case against Carillion’s former chief executive Richard Howson is still pending and won’t be heard by the Upper Tribunal until next month.
Britain’s approach to white collar misfeasance is shamefully indecisive, slow and timid.
Slow build
Labour came to office convinced it could drive productivity and growth by upturning planning rules and building 1.5m homes.
It hasn’t quite worked out like that. Latest data from the construction sector shows that despite the Government’s pledge, output contracted in December for the 12th month in a row, the worst performance for two decades.
Putting an extra planning officer in every borough was a good slogan. However, the loss to first-time buyers of breaks on stamp duty and ending ‘Help to Buy’ has proved yet another act of self-harm.
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