David Ellison’s Warner Bros Bid Takes Shape; No Clear Role for Zaslav – The Dish

David Ellison, advised by Jeff Shell and Gerry Cardinale, is reportedly preparing a bid for Warner Bros. Discovery (WBD), with informal discussions underway following the re-signing of key WBD film executives Michael De Luca and Pam Abdy, which enhances the target's appeal. Ellison seeks a clean acquisition, likely without a significant role for current WBD CEO David Zaslav, who has reportedly explored alternative bidders like Netflix. However, analysts view Netflix as an improbable suitor given WBD's substantial debt, linear assets, and an estimated $70-100 billion valuation. While WBD shares have risen on speculation, analysts warn of downside risk if a deal fails, though the probability of a Paramount bid succeeding and clearing regulatory review is considered high due to strategic and geopolitical considerations.

Analysis

David Ellison is reportedly preparing a bid for Warner Bros. Discovery (WBD), with the recent re-signing of film chairs Michael De Luca and Pam Abdy, who delivered a $4 billion global box office year-to-date, significantly enhancing WBD's appeal as a target. Ellison seeks a "clean sheet" acquisition, aiming to avoid a protracted process and likely excluding a significant role for current WBD CEO David Zaslav.

The potential acquisition values WBD at an estimated $75-$100 billion, including its $30 billion net debt. Analysts like Richard Greenfield of Lightshed Partners view Netflix as an improbable suitor, citing its disinterest in linear cable networks and preference for original IP over a high-debt acquisition. The pool of other potential bidders, such as Comcast or Apple, appears limited due to regulatory concerns or strategic fit.

WBD shares have nearly doubled to $20 on acquisition speculation, yet TD Cowen's Doug Creutz warns of significant downside, projecting a potential "round trip to $11-$12" if the bid fails to materialize. Despite this risk, the probability of a Paramount bid, its acceptance, and regulatory clearance is considered high, driven by both business and "political" rationales.

Key Decisions for Investors

• Monitor WBD share price volatility closely, given the significant downside risk if the rumored bid does not materialize.
• Evaluate the strategic implications for Paramount (PARA) if the acquisition proceeds, considering the potential for enhanced content libraries and market position.
• Assess the likelihood of regulatory approval for a WBD acquisition, as this remains a critical factor despite high probability estimates.
• Consider the long-term value of WBD's core assets, such as HBO Max and its film studio, independent of the current M&A speculation, especially if a split occurs.