David Ellison used political ties, deep pockets to buy Warner Bros.

The transaction is the culmination of a months-long campaign by David Ellison to win over Warner Bros. shareholders, regulators and the White House. Photo by Anna Moneymaker/Getty Images

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Ellison’s advisers were steeling for at least four more days of hard work. Netflix had the right to match the offer under the terms of its deal with Warner Bros., and Paramount was ready to go several rounds against the streamer. But a couple hours later, Sarandos called Zaslav back to inform him that Netflix was out. Warner Bros. and Paramount were stunned. Netflix had outbid Paramount in the first round of negotiations, and Sarandos, the company’s co-chief executive, had spent the past week defending the deal in public.

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Netflix confirmed on Friday it received a US$2.8 billion breakup fee from Paramount for exiting its deal.

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The dramatic turnaround has positioned Paramount to acquire Warner Bros. in a US$111 billion transaction that would make the Ellison family owners of one of the largest entertainment empires in the increasingly global industry. The combined company would own two major Hollywood studios, HBO, CBS and a couple dozen cable networks. This account is based on conversations with a dozen or so people involved in the deal.

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The transaction is the culmination of a months-long campaign by Ellison to win over Warner Bros. shareholders, regulators and the White House. Ellison and his team lobbied politicians to oppose Netflix’s deal and warned Hollywood about its potential consequences.

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Ellison’s dogged pursuit speaks to the uncertain — some detractors would say desperate — state of Paramount, which derives all of its profit from TV networks that attract smaller audiences every year and owns a streaming service that is a fraction of the size of larger competitors. The newly combined company will spend years slashing costs to pay down a mountain of debt and is still likely to face a tough regulatory review.

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But for Ellison, a 43-year-old cinephile just getting his feet wet as a Hollywood mogul, it was a deal he had to have. Adding one of Hollywood’s great studios and a premium streaming service to his portfolio “could finally transform two subscale media companies into a more serious industry player,” according to research firm MoffettNathanson.

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A botched first attempt

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Despite having just spent almost two full years pursuing Paramount, Ellison at first underestimated what it would require to buy Warner Bros. He initially made a series of offers that the company’s board rejected as insufficient, opening the door for rival bidders. Even as Comcast Corp. and Netflix entered the fray, Paramount remained confident. It was the only suitor willing to buy all of Warner Bros.

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When Warner Bros. rejected Paramount’s bid and announced a deal with Netflix on Dec. 5, Ellison and his team were incredulous. They wasted no time mounting a counteroffensive.

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On Dec. 8, Paramount announced a tender offer to buy shares directly from shareholders and held a conference call in which Ellison explained why he believed the Paramount deal was better. Ellison then attended a summit hosted by UBS Group AG in New York, hunting for any shareholders who would listen to his pitch.