Sale of Warner Bros. Discovery heats up as Ellisons weigh ‘DefCon 1’ litigation over selection of Netflix bid

Warner Bros. Discovery is signaling that it wants Paramount Skydance chief David Ellison and his multibillionaire father Larry Ellison to increase their $30-per-share, all-cash “hostile” offer for the media conglomerate – and if they’re willing to do so, WBD is ready to negotiate a possible sale to the duo, The Post has learned.

Not so fast, say the people at Paramount Skydance and their partners at RedBird Capital. 

The Ellisons and RedBird, run by savvy media dealmaker Gerry Cardinale, are mulling something known internally as “DefCon 1” – using lingo for the security level when nuclear war is imminent. That plan would entail walking away from the bidding process – including their recent hostile appeal to shareholders – and litigating how WBD’s board handled the process, The Post has learned.

People inside Paramount Skydance allege that directors and management ignored their sixth all-cash offer for the company and favored Netflix’s cash-stock bid throughout the bidding process because of a personal bond between WBD chief David Zaslav and Netflix CEO Ted Sarandos. As this article went to press, they still believed their $78 billion, all-cash offer was far superior to the cash-stock, $82.7 billion winning bid from rival Netflix – and had no intention of increasing the price as they press their case directly to shareholders.

Meanwhile, WBD is expected to formally address Larry Ellison’s personal guarantee backing Paramount’s bid and its impact on the deal process in the coming days. Press reps for WBD, Paramount Skydance and Netflix declined to comment. WBD has in the past denied personal relationships figured in the decision to select Netflix as the winner of the bid war, saying the streaming giant came up with the best offer. 

Whatever happens, one thing is certain: The biggest corporate acquisition in recent history has turned into a nasty tug-of-war among the most powerful people in tech and media, with the added complexity of the man in the White House, Donald Trump, hovering above the contretemps.

The president has said he is seeking to render final judgment on who wins out given the size of the deal and the powerful media interests involved, including the future of CNN. Despite its declining audience shares, the outlet remains a powerful journalistic organization that Trump believes carries too many anti-MAGA voices. Whoever ends up winning will need the blessing of Trump’s Department of Justice antitrust division.

This column is based on interviews with people close to all the principals involved in the process following news earlier in the week that Larry Ellison, the Oracle co-founder, appeared to meet a key demand from WBD to personally guarantee Paramount Skydance’s all-cash bid in its entirety with his massive fortune, estimated at $250 billion.

On top of the fact they’re offering all greenbacks, Paramount Skydance emphasizes it would be buying all of WBD and contends there would be no significant regulatory overlap in their deal. Netflix is moving to buy just WBD’s studio and streaming company, HBO Max. That means layering two of the biggest steamers in the world – and is certain to raise antitrust concerns.

Netflix stock makes up a significant, 16% portion of its bid, which is in flux as the bidding war continues and investors revalue shares to include WBD’s cost and liabilities. 

Another uncertainty for investors: WBD is promising an additional $3 to $4 per share from equity they would receive after the spinoff of WBD’s cable properties – CNN, Discovery and TNT. But the value of those assets are in flux, too – audience shares have been decimated by cord cutting and the new company would have between $15 billion and $18 billion in debt once the spin-off is complete.

Famed investor Mario Gabelli, who holds shares of WBD, has said he likes the Ellisons’ offer and will likely “tender,” or pledge, his shares to Paramount Skydance. Others are waiting to see if the Ellisons will increase their bid. So far, just 400,000 of the 2.6 billion WBD shares have been pledged for Paramount’s offer. 

As of this writing, it’s unclear whether the Ellison’s will indeed up their offer as WBD and investors are asking – and while WBD and Paramount continue to throw jabs at each other about the months-long bidding process and which bid is actually superior. 

Just days after WBD announced that Netflix had prevailed over Paramount Skydance, Zaslav and Sarandos were pictured in jeans, blue blazers and sneakers walking the Warner Bros studio lot – a victory-dance image that angered people inside the Ellison camp, who were in the middle of their own hostile appeal to WBD shareholders.

“Who the f–k think do these guys think they are,” said one person close to the Ellisons. “It’s not their company, but the shareholders.’”

On Monday, the Ellisons took a step to address one of the main concerns WBD made in rejecting its offer and put Larry Ellison personally on the hook for the entire deal if other financing aspects fall apart. Recall: Paramount Skydance is a company with a market value of just under $15 billion, far smaller than WBD’s current $72 billion market capitalization. Also, its financial resources mainly come from equity from outside investors, debt and Larry Ellison’s net worth – initially through something known as a backstop from the “revocable trust” that holds his holdings, mainly of Oracle stock.

WBD contended that making a revocable trust the backstop meant Ellison’s guarantee wasn’t a firm one; Paramount Skydance contended that was a red herring thrown in at the last minute because WBD had begun “exclusive” negotiations with Netflix.

But people at WBD say Zaslav repeatedly met with both Ellisons, spending more time with them than anyone at Netflix, and believed the Netflix offer was superior. To reopen the process, WBD needs to meet all the conditions that Netflix has including specific financing arrangements. They also need to pay more – close to $33 or $34 a share, I am told.

“Larry personally guaranteeing the deal is a great start but what [WBD is] saying is if you guys want the company, pay more,” said a person with direct knowledge of their thinking. 

As The Post has reported, the Ellisons and RedBird have discussed increasing their offer by as much as 10%. They believe that they have addressed WBD’s breakup fee of $2.8 billion, or $1 a share, by making it an expense to Paramount – no shareholder would be charged.  

Another possibility, I am told, is Paramount Skydance walking away and letting the Netflix deal play out with uncertain regulatory approval and possibly shareholder litigation if the cable spin-out underperforms.

The last option is “DefCon 1,” and that means filing a lawsuit charging that WBD ran a bidding process that favored an inferior bid from Netflix, say people with direct knowledge of the matter.

“I would love to litigate just to see the emails on how they justify what Netflix put up and what was said between Zaslav and Sarandos,” said one person close to the Paramount Skydance bid.