What Really Happened in the Battle for Warner Bros.

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It was a pretty stunning upset.

Paramount Skydance finally clinched the deal to buy Warner Brothers Discovery after a months-long bidding war with Netflix.

The final price tag? $110 billion. $31 a share.

Yeah, it's just about the biggest and quite a few years.

Bloomberg's Chris Paul Mary said that number is just so much bigger than other big media deals we've seen.

Go back to Disney Foxes around 70, 80 billion.

So this is a big number. I was surprised because media values have declined in recent years, but the amount of this deal is dramatic.

Back in December, Netflix had offered to buy the studio and its streaming business for nearly $83 billion.

And Warner Brothers board accepted.

It seemed like the end of the story, but it wasn't.

When did the tides actually start to shift toward Paramount?

Our reporting indicates it was Saturday, February 21st.

Bloomberg's Lucas Shaw says that's when Paramount CEO David Ellison called up Warner Brothers CEO David Zazlov

and said, we've gotten an offer that's going to address all your remaining concerns.

Paramounts have made an offer that was really close to what Warner Brothers wanted and people who were involved in the deal said that at that point they were on the five yard line.

Paramount Skydance has won a bidding war with Netflix over Warner Brothers Discovery.

Paramount's persistence paid off.

The board changed their mind, money talks. They went to what they thought would get their shareholders paid the most and as a result, get them paid the most.

I'm Sarah Holder and this is the big take from Bloomberg News.

Today on the show, the anatomy of a deal. Why Netflix bowed out, the regulatory hurdles that remain and how these two big movie studios will become one.

When the bidding war over Warner Brothers Discovery started in October of last year, we saw ever increasing offers from each side.

Endless negotiations and a laundry list of powerful people getting involved, including President Trump.

There was even some talk that Netflix may have walked away from the deal because of political pressure.

But entertainment and media reporter Lucas Shaw, who also writes the screen time newsletter for Bloomberg, says it really came down to price.

It was really a financial decision.

Lucas got the first interview with Netflix co-CEO Ted Sarandos after his company dropped out of the bidding war for Paramount.

Ted was adamant that this had nothing to do with politics despite a lot of the speculation because he'd been in DC the week or really the day that Netflix pulled out and had been to the White House and met with the Department of Justice.

They had put forth their best and final offer in early December and that Paramount kept revising its offer.

David Ellison had made it clear that not only was he coming over the top here but that he would continue to bid more and that they viewed him as an irrational buyer.

So Netflix walked away but not empty handed. The company got a big break up fee from Paramount and a bump in share price from investors who weren't totally sold on the plan to buy Warner Brothers in the first place.

There's talk is up and they got paid 2.8 billion, which will make you a lot of Adam Sandler movies pretty quick.

Bloomberg's entertainment and telecom reporter Chris Palmerry.

People often say that's best deals and the ones you never do. I think that's certainly the case in Netflix.

So Lucas, going back in time a little bit, why has everyone wanted Warner Brothers Discovery?

These two massive studios, Netflix and Paramount's guidance have spent a lot of time, a lot of energy and a lot of money to acquire it.

What made it worth fighting for so hard?

Well, it's a rare asset, right? Warner Brothers is one of if not the most productive studio in Hollywood.

If you look across film and television, it's kind of year after year, probably the number two or three movie studio after Disney.

It's television studio produces some of the most popular shows in the world.

Ted Lasso, Abbot Elementary. It's the home of friends and Big Bang Theory.

It's got HBO, which is both a great brand and a library of hit programs.

And so I think people always see potential in that. It's never really been realized by one of these owners.

People try to figure out how to better position HBO as a competitor to Netflix, how to use the studio.

And it hasn't quite panned out, but it doesn't stop people from always wanting to try, because there are only so many studios you can buy.

Unique as Warner Brothers may be, Chris says it was surprising to see David Ellison put his hat in the ring to try and buy it,

because he'd only recently taken over Paramount.

Ellison's company, Skydance Media, announced it would take control of the studio for $8 billion in 2024.

The deal took nearly a year to finalize after going through regulatory hurdles and FCC approval.

David Ellison fought a very hard fought battle to take control of Paramount.

And just close on that deal in August of last year, and literally a month later he was bidding for Warner Brothers,

staggering amount of work to consolidate Paramount and then to try to buy an even bigger company.

And so $19 a share was his first offer.

There was eight or nine offers since then that steady drum beat.

I mean, it was a multi-pronged attack, if you will, on the Netflix deal by David Ellison and Paramount.

They went to shareholders and they said, you know, there should be a bidding war here.

We're offering more that deal isn't good.

You know, they went to politicians and played every card they could in that department.

David Ellison went to the White House, he went overseas.

Meeting the president, meeting with regulators, everyone you could imagine.

You gave us some context for that $110 billion figure, just how big that is in the scale of other media company deals.

But is there a danger that they're overpaying?

Oh, yeah. I've joked many times that I don't even think it's a joke.

But this company is like the King Tut's tomb of corporate world because everyone that touches it is sort of cursed.

If you think about AOL buying it, AT&T buying it, then the discovery merger, none of those deals have worked.

And so this is going to be a major challenge.

The story will not be over by September 30th or whenever they hope to close this deal.

It's going to be major consolidation.

We've never really seen consolidation of two Hollywood studios like this.

This is a situation where you'll have two separate studio lots, Paramount and Warner, two separate movie studios, different people heading those.

That's not really been the case ever.

So we'll have to see how that works.

Major consolidation in the cable networks.

So this is now a business that will stretch from MTV, CNN, HDTV, CBS.

I mean, just a huge television arm that's facing major challenges because of the meltdown of traditional TV.

And then this consolidation, which is really what this is all about, the streaming business.

So HBO Max and Paramount Plus becomes one, you know, they'll still be facing five or six other major competitors.

Can they make that work? Can they make that pay off? It's a lot of work ahead.

To pay for Warner Brothers, the Ellison family and their partner, Redbird Capital, have pledged to invest $47 billion in the deal.

Some of that money will likely come from other equity partners, including three Middle Eastern sovereign wealth funds identified in public filings.

And then there's the debt.

They're taking on an enormous amount of debt.

Well, north of $70 billion to complete this transaction and pocket change.

Yeah, yeah, yeah, it's not, it's not nothing.

Well, Lucas, we talked about how adamant Netflix was that politics wasn't behind their decision to stand down here.

But as we mentioned before, Paramount CEO David Ellison was lobbying heart for President Trump's support.

And Trump wasn't shy about rooting for Paramount in the spitting war.

So I'm wondering if you think politics had any influence on the outcome of the steal?

I think Trump had pretty minimal influence where politics had the most influence was on the Warner Brothers shareholders, right?

After Warner Brothers announced its deal with Netflix, what the Ellisons did really effectively was kind of rally a bunch of other people to oppose the deal and be concerned about it.

That was senators, that was Republican attorneys general.

They certainly worked the Department of Justice.

And even figures in Hollywood, they really scared about the deal.

And so all of this, this feeling that the Netflix deal would face a stiff review, whether it was in the US or Europe,

spooked a lot of Warner Brothers shareholders who were just saying, I want my money now.

Like get me as much money as quickly as possible, let's get out of this.

And they started to make a lot of noise and put pressure on the Warner Brothers board.

So I think Trump and politics played a factor in a lot of the decision making.

It was strongest with influencing Warner Brothers shareholders who then in turn influenced the Warner Brothers board.

After the break, what will it take to bring these two big studios together?

Past mergers might hold some answers.

Plus, how the deal could impact the news and content you watch and stream.

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The bidding war is over and Bloomberg's Lucas Shaw and Chris Paul Mary told me that now comes the even harder part.

Combining Paramount Skydance and Warner Brothers Discovery into one mega studio.

There's a tremendous amount of overlap. They both own film and TV studios.

They both own cable networks. They both own streaming services.

There is very little that one does that the other doesn't do, which is why it's a kind of widely held belief that this will result in thousands of job losses.

Paramount, when they initially were talking about their deal, I think touted about $6 billion in synergies.

Some people think it might be even higher.

Exactly what that's going to look like remains to be seen.

They're going to keep Paramount and Warner Brothers as independent labels as studios are combined them.

They're going to say that they're independent and that they're going to increase output in both places.

The history of mergers suggests that they will in fact curtail output over time, but they have to say they're going to boost it to get it approved.

Same deal on the TV studio side. With the TV networks, I assume it's going to be a blood bath.

They're just going to fire a ton of people and merge all those together.

David Ellison has really pounded the table and said they're going to make more content, more movies, more TV shows.

It's going to be a giant unwieldy conglomerate with all of these different parts competing for attention and for money.

Whether that translates into more content or are they ultimately put pressure on to cut costs and maybe less choice for us.

You mentioned looking at history to kind of serve as a guide to how a merger like this might play out.

What is the track record of these types of massive media mergers when you combine something like Warner Brothers and Paramount?

Piss poor would be the answer. There has never been one of these deals.

These deals don't work. Just look at the history of Warner Brothers.

Time Warner merged with AOL, textbook example of one of the worst mergers in the history of business.

Forget just the entertainment business. Time Warner sells to AT&T. That didn't work very well.

Warner media mergers with discovery. That doesn't work very well, which brings us to this point.

There just are not a lot of examples, at least in the entertainment business, of multi-billion dollar deals that worked out well for the acquirer.

Yeah. I mean, if the track record of these kinds of media mergers is so disastrous is Piss poor, as Lucas said, why keep trying?

Huber's ego. If you're struggling and you've tried everything else, cutting costs, spending on these rights or this rights, then the idea of just, oh, I'll just bulk up.

It'll be so much easier if I just buy them. I think that's compelling argument that people can make them themselves and consultants make to them and bankers make to them.

But ultimately, I think there's a lot of ego in this as well.

We touched on the regulatory pressure and Netflix Warner Brothers merger may have encountered. What about Paramount? Warner Brothers. What does a regulatory landscape look like there?

Well, by a lot of traditional metrics, the Paramount deals actually worse from a regulatory perspective or one that would be more likely to face scrutiny because you're combining like assets, right?

So you're combining two movie studios. It creates one movie studio that would have north of 20% market share more than likely.

You're combining a bunch of cable networks, and then you add in some of the less consumer facing ones, but more of the monopsony, the ecosystem, its impact on suppliers.

It's going to be one of, if not the biggest producer of film and television in the world, and so what kind of market power will it have overwriters and directors?

And how might that regulatory scrutiny play out over the next few months?

It seems pretty clear that the Department of Justice is not going to go after this deal. They've sort of already breeze through a lot of it.

They may have to resubmit what they're doing, but nobody's expecting the DOJ to file suit against it.

The main questions are in Europe and with state attorneys general from democratic states. You know, I think in Europe there will be a review and there might need to be kind of one or two changes made, maybe a divestment or two, but nobody's expecting it to block the full deal.

I think you could see state attorneys general trying to block the whole deal, whether they'll be successful is sort of anyone's guess. I think more likely there would need to be some remedies sort of like in Europe.

Because if this goes through, a lot of viewers are worried about how this might impact the content they consume.

For example, if we look at news media, Paramount already owns CBS. Alison hired Barry Weiss to be CBS's editor-in-chief, and she's been critical of mainstream media outlets accusing them of liberal bias.

She's opposed to cancel culture, views that make her popular with conservatives, and she's already clashed with some in the newsroom over editorial direction and concerns that she's willing to appease the Trump administration.

What does it mean for the news landscape in the US if Paramount now also owns CNN?

That one is hard to say, because I don't sense that David Ellison is spending a significant amount of his time thinking about the news business.

It's not his number one priority. He's been more focused on film and television and entertainment.

Obviously, the big concern that some people have is that because the Ellison's, in particular, Larry Ellison is close to Donald Trump and Republican politicians, that they'll sort of tilt CNN more to the right.

They have not said anything to suggest that they're going to do that, but it's understandable why people would be concerned about it.

Recently, in an interview with CNBC, David Ellison tried to reassure journalists at CNN, saying that, quote, editorial independence will absolutely be maintained.

The comments certainly didn't surprise me. He's going to say whatever he needs to do to sort of appease and modify folks.

CBS News was not a centerpiece of his strategy for Paramount, nor is CNN going to be a centerpiece of a strategy for Warner Brothers.

It is a nice asset to buy, but if you told him that he could buy it without CNN, I'm sure he'd be happy to do that.

We've been talking about media consolidation broadly in this country, but there's also been consolidation of the media happening under the Ellison family.

I'm wondering what completing this deal would mean for the Ellison's power and influence over the media business in the US.

I mean, it puts them in charge of one of the largest and most powerful media empires in the world.

Two studios, dozens of TV networks, two major streaming services, you know, by kind of any measurement, but in terms of revenue, in terms of market cap, in terms of streaming subscribers, it makes them the owners of one of the three to five biggest media companies in the world.

And of course, Oracle just invests in TikTok as well. So certainly part of this narrative that there's a sort of broader, more conservative takeover of the mainstream media.

I guess you can argue whether that's good or bad depending on your politics, but many people have made the case that Paramount is moving in that direction.

To Chris's point, what are David Ellison's plans for this massive company that he's now in charge of?

I mean, he went from running a relatively small business in Skydance to leveling up and running a much bigger business in Paramount, and now he's going to be on top of something with tens of thousands of employees.

It's just unlike anything he's done before.

This is The Big Take from Bloomberg News. I'm Sarah Holder.

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Thanks for listening. We'll be back tomorrow.

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