Larry Ellison Backs Paramount's WBD Offer with $40B Guarantee

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00:00We can put the Trump administration in the relationship with the Ellisons to one side for a minute remains going to go there.

00:04But first, remind us how this deal's been amended, because it does all come back to Larry Ellison,

00:09as basically every single story in media and tech right now seems to.

00:13Yes, it does. Yeah, I mean, this is there was a lot of questions.

00:16How how how really committed is Larry Ellison to this deal?

00:20How much is he standing behind his son?

00:23And and this response today is 40 billion worth.

00:26You know, there was this takes a big step towards addressing the concerns that Warner Brothers board outlined last week in its filing.

00:35So in addition to a personal commitment from Larry Ellison for all the equity in the deal,

00:41they're making they've agreed to give Warner Brothers flexibility in the interim so we can make, you know,

00:48licensing deals over 10 million dollars, for example, and change its executive pay.

00:52These are all things that Paramount wasn't conceding to.

00:56They also bumped up the breakup fee if the regulators don't approve their deal to five point eight billion dollars,

01:02which would be to Warner Brothers by Paramount.

01:06That's matching Netflix.

01:07So a big step toward meeting some of Warner Brothers demands.

01:12I am curious, though, Chris, about just the structure potentially of the deal

01:17and the idea that Netflix's deal actually involves lenders, banks, I should say.

01:22On the other hand, you have the Paramount deal, potential deal that at least on the surface seems to be now a personal project

01:31that would be pretty much funded to a large extent by Larry Ellison himself.

01:36Have we gotten any sort of sense here as to whether shareholders would prefer shareholders in Warner Brothers Discovery

01:41would prefer one structure over the other, not just the aggregate amount being offered?

01:46Yeah, and I just want to clarify that this is a personal guarantee on the 40 billion dollars by Larry Ellison,

01:53not meaning that he ultimately will actually contribute 40 billion in equity.

01:57There are other partners that have been identified, Middle East Sovereign Wealth Funds, Redbird Capital, etc.

02:02So ultimately their plan is not to have Larry write a check for 40 billion.

02:09But that said, there are differences in the balance sheet for sure,

02:15and that's one of the reasons why Netflix refinanced its debt today,

02:19to kind of underscore that it has an investment-grade balance sheet and would continue to do so.

02:23Sorry, let me just rephrase the question a little bit,

02:25because my understanding is that right now with the way that the Netflix deal stands in terms of the financing itself,

02:32those lenders wouldn't necessarily be taking an actual stake per se in the company directly.

02:37So no dilution potentially for shareholders.

02:40What we know about the Larry Ellison $40 billion commitment,

02:45would that involve other outside folks taking an actual equity stake in whatever the new entity ends up being?

02:51Yeah, so minor dilution on Netflix's part because they are offering some of the purchase price in Netflix stock,

02:59so there is a little dilution there.

03:01Huge dilution for Paramount shareholders because that $40 billion in equity is being put in,

03:07and so that means more stock of Paramount Warner Brothers that will be owned by the Ellisons and their partners.

03:14So yes, the Paramount shareholder is seeing dilution.

03:17The Paramount shareholders looking on, Warner Brothers Discovery have won until January the 21st

03:23if they are indeed going to accept this go-direct share offering coming from the Ellisons.

03:29But we know from last week that Warner Brothers Discovery still stand by recommending Netflix.

03:35Do you think basically David Ellison and gang need to increase the price

03:40as well as sweeten the deal in terms of who's actually good for the money

03:43and indeed what the unravelling price might be?

03:46Yeah, a lot of people have said that.

03:49Mario Gavelli, Harris Associates, the fifth largest shareholder.

03:52Kevin Mayer, who you interviewed last week, Caroline, not an interested party,

03:57but a well-known Hollywood dealmaker.

04:00So yeah, that certainly seems to be the case,

04:02particularly because if Warner Brothers abandoned Netflix now,

04:07they would have to pay Netflix $2.8 billion,

04:09and Paramount hasn't offered more money that would compensate

04:13Warner Brothers shareholders for that loss.

04:15So yeah, all signs point to Paramount ultimately having to raise their bid.

04:20And I suppose there's then what we were getting at before.

04:25The regulatory environment is an interesting one.

04:27It's going to be tough no matter which combination,

04:29because this has a real impact on Hollywood going forward.

04:32The jobs in it, the way in which content's produced,

04:34who they're going to sell to.

04:35But it also has an impact and has been explicitly or implicitly put forward by the Ellison team.

04:44Do they have a close relationship with the White House?

04:47Will that matter?

04:47Does that matter?

04:49The Ellisons have certainly positioned their relationship with the Trump administration

04:53as a point in their favor.

04:56They've said that they're more likely to close,

04:58that Netflix has, you know, just so much more power in streaming.

05:02Mixed messages from Trump himself.

05:04He said he's, you know, going to consider both.

05:06This is how arbitrageurs make a living, trying to figure out the tea leaves here.

05:12Right now, I would think it's,

05:14maybe people would agree that Paramount might have an easier route,

05:18but that's not certain.

05:20It gets also to the idea, though, Chris, too.

05:22I mean, there was obviously a little bit of controversy over the weekend

05:25with regards to a 60-minute segment that appeared to have been canceled

05:29at the behest of their editor-in-chief,

05:31who at least is presumed to have some sort of ties

05:34to some of the folks in the White House.

05:36And it gets to this idea as to whether this is truly going to be a regulatory decision

05:40or much more of a political one with regards to who gets the rights

05:44to end up buying Warner Brothers Discovery.

05:46Well, certainly when you see all of these steps

05:49that Paramount and the Ellicens have made,

05:52some of them before their time,

05:53that Stephen Colbert's show being canceled,

05:55the settlement with Trump,

05:57all of the changes they're making at CBS News

06:00with Barry Weiss coming in

06:01and an ombudsman being appointed to oversee fairness,

06:05it certainly is a continuation of actions

06:10to try to appease people in Washington.

06:13And, you know, whether that continues to be the case,

06:17I mean, Trump has complained as recently as last week about his coverage there.

06:23So, always a wild card.

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