On a bright but frigid December morning, David Ellison held court in a makeshift war room in the basement of the UBS building next to Madison Square Park.
Sporting cream-colored slacks and a crisp blue blazer, Ellison and his senior Paramount leadership team took meeting after meeting with Wall Street heavyweights in a private room in UBS’ subterranean conference center, outlining their strategy to transform Paramount, and to persuade them to back their tender offer for Warner Bros. Discovery, which days earlier inked a deal to sell itself to Netflix. Ellison was a “man on a mission,” one attendee tells The Hollywood Reporter.
The CEO is seeking to reshape Paramount, and pry WBD from Netflix in the process, as part of a reimagining of what an entertainment company should be at a time then the industry is being “technologically disintermediated,” as one source close to him frames it.
That makeshift war room in the basement of the UBS building has since escalated into something closer to outright war.
On Jan. 12, Paramount sued Warners, escalating its fight and seeking an order that would force the company’s board of directors to show its work, betting that bringing that information to light will help its case. And Ellison also announced his intent to launch a proxy fight for Warner Bros. should the company continue to not engage.
“This is an old-fashioned fight for a target. We have seen this sort of thing forever,” says Mario Gabelli, the influential investment manager, and a WBD shareholder. “As far as the attempt by Paramount to have a proxy fight, why not? It’s all a part of the smoke signals and mechanics of it.”
The public battle “signifies that as the top team, in consultation with the board, they think the stakes are so large that they’ve got to go all in” says Michael Useem, a professor of management at the Wharton School of the University of Pennsylvania. “The proxy fight threat, it’s not unusual, it happens, it is indicative of the depth of commitment by Ellison to make the best go of it.”
To be clear, a proxy fight is not yet a sure thing. Paramount is betting that its lawsuit can pry out new data that could sway investors or force WBD to engage, which is its preferable course of action. The suit and proxy threat are simply the logical next step in the process.
The window for WBD to set its annual meeting opens in about three weeks, and Paramount could nominate a slate of nominees that would force deal talks. If WBD scheduled a special meeting to approve the deal beforehand, Paramount could wage a proxy campaign to vote “no.”
And Netflix could still adjust its offer, either by raising the price, or by moving to an all-cash deal, a move that could box Paramount in and force them to reraise themselves.
Mario Gabelli
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“From my point of view Netflix has to simplify the deal,” Gabelli tells THR, adding that as of now he plans to tender around 90 percent of the WBD shares he manages to Paramount, in order to apply pressure on WBD and Netflix. “At least I can send a signal that I like cash and the timing of the [Paramount] deal.”
There are indications Netflix is listening, and will change its bid in the near future partly in response to those concerns.
“At the end of the day, there’s a responsibility here to deliver the highest price, the highest value, and the highest and the best certainty of closing to shareholders. That’s it,” someone close to the company says of its thinking. And Paramount still believes that it’s offer is the better one.
Paramount’s effort to steal Warners from Netflix’s grasp has played out publicly, with multiple letters to shareholders, a personal guarantee from Oracle founder Larry Ellison, and dueling appearances on CNBC from RedBird Capital’s Gerry Cardinale (who is backing the Paramount bid) and WBD board chair Samuel Di Piazza.
But a proxy fight would, if Paramount follows through on its threat, take that public fight to the next level.
And there are reasons to think that if it runs to its conclusion, it could become the most explosive proxy battle in the history of the entertainment business.
Consider Nelson Peltz’s battle against The Walt Disney Co. in 2024.
Nelson Peltz
Heidi Gutman/CNBC/NBCU Photo Bank/NBCUniversal/Getty Images
Peltz, the well-known activist investor, was backed by the billionaire former Marvel executive Ike Perlmutter. Their pursuit for a couple of Disney board seats forced Disney to reveal a slew of deals: From its billion-dollar investment in Epic Games to its surprise Moana sequel, Disney and CEO Bob Iger went all-out to make their case that they were on the right track.
But Paramount’s pursuit of Warners is different: It would engulf three of the biggest players in entertainment, with one company, Paramount, pursuing another, WBD, which has a deal with a third, Netflix. The activist is itself a competitor, and the billionaire backing it also happens to be one of the richest people on planet earth, Larry Ellison (currently worth $255 billion).
Proxy fights have a way of revealing information and shaking friends and enemies out of the woodwork.
But they are also extremely expensive, for both the activist and the defending company. Disney spent about $40 million to defend itself from Peltz’s onslaught, while Peltz spent about $25 million, according to filings from both sides of that battle.
“It’s a tedious business,” one proxy fight veteran says, noting that fights require catching attention of investors through media, solicitations and in-person meetings, which take a lot of time out of the time of senior executives. That was the case at Disney two years ago.
“Everything else gets pushed, all other meetings get called off,” Useem says. “David and his top team, maybe the top 10 or 15, are probably spending full time on this and doing nothing else.”
That will mean meetings with investors, and both sides trying to sway the influential shareholder advisory firms like Institutional Shareholder Services (ISS) and Glass-Lewis (though notably ISS’ recommendation failed to make a dent in the Disney fight).
But proxies are also about leveraging and swaying public opinion, and this fight, should it happen, will instantly become one of the most public proxies in history, given the personal interest of President Trump.
While much of the talk around the deal with regards to Trump has been focused on antitrust and regulatory concerns, the President has not been shy about sharing his thoughts publicly too, telling reporters last month that he would be involved in any review of the deal, and suggesting that CNN should find new ownership. He also reposted an article that was critical of Netflix’s deal for Warners.
Should the corporate dealmaking move to a street fight, there is no doubt that Netflix and Paramount would be looking for whatever levers they could when it comes to the President’s thoughts on the deal. Both companies have hired Ballard Partners, a lobbyist with close ties to the White House, according to public records.
But the potential proxy battle could still end up being something of a mirage. The cost, public scrutiny and intense focus it would require are still the backup plan for Ellison.
“The best outcome for you and for us would be if WBD’s Board would exercise the right it has under the Netflix Agreement to engage with Paramount,” Ellison wrote to shareholders Jan. 12. “If it does so, we will be open and constructive to secure the best path forward for WBD and each of you.”
But if they don’t, expect Ellison to ramp things up. It might be the last shot he gets.
“When the stakes are very large, companies recognize that this is the moment to act, because if it’s not now, it’s going to never be,” Useem says.
This story appeared in the Jan. 15 issue of The Hollywood Reporter magazine. Click here to subscribe.
