Activist investor Ancora Holdings is interviewing director candidates as it considers launching a proxy fight against Warner Bros. Discovery over its $83 billion deal with Netflix.
The firm, which has roughly $11 billion in assets under management, has built a $200 million stake in Warner Bros. and accused the board of not adequately engaging with Paramount’s hostile takeover bid. In addition to WBD, Ancora has taken activist stakes in industrial companies such as CSX, Norfolk Southern, US Steel and C.H. Robinson.
“Whether it’s media, whether it’s industrials, we typically get involved in situations where we think boards have made decisions that aren’t necessarily in the best interest of shareholders and we have an opportunity to get involved to maximize value,” Ancora Alternatives president James Chadwick told CNBC on Wednesday. “We’re actually very excited to do that here, to play a role.”
On Tuesday, Paramount CEO David Ellison sweetened its bid with a 25 cent per share “ticking fee,” which will give shareholders $650 million in cash for every quarter a deal isn’t closed after Dec. 31, and said it would cover the $2.8 billion termination fee payable to Netflix, as well as other debt and financing commitments. Paramount also said it is open to discussing “contractual solutions to account for the possibility of continuing deteriorating financial performance beyond what WBD is currently projecting for its linear network business.”
On Wednesday, Ancora released a 51-page investor presentation in which it argued that Netflix’s deal is “flawed, inferior and high risk.” It argued that Netflix’s offer contains “an uncertain final cash consideration based on an unknown debt allocation and an unknown equity value of the Discovery Global spinoff.” It also said that initial reactions from U.S. and European policymakers cite “extreme concern over antitrust issues” with the Netflix deal and that the streamer “appears to lack the political relationships that Paramount has with the current administration.” It also accused the board of failing to adequately engage with Paramount’s offer, which it says proposes “real financial certainty,” has the “credible backing of the Ellison Trust” and a “viable path to regulatory approval.”
Chadwick said the latest proposal from Paramount “effectively opens the door” to reopen negotiations with WBD’s board and believes that there’s even room for Ellison to increase his bid.
“This is a huge deal. It’s transformative. It’s a once in a lifetime chance for them,” he said. “We believe, though, that number will go up, and ultimately this is the board’s chance to not fall down and do the right thing for shareholders.”
While Ancora’s current WBD stake represents less than 1% of the company’s total outstanding shares, Chadwick said that the firm isn’t ruling out increasing its position and expressed confidence it could “inflict a lot of damage on the Warner Brothers board if that’s what we’re forced to do.”
“The stake is a growing stake. It’s one that we will likely continue to add to. It really depends on what happens next and whether this ends up being something that involves a proxy fight or withhold campaign, whatever that might be. “But we do view this as a situation where the board should be held accountable, if they fall down here on this transaction,” he explained. “This doesn’t need to turn into a fight. It really, really doesn’t. But if it does, we have a long history of exiting CEOs that chosen to fight with Ancora and that can happen again to Mr. Zaslav if that’s how he wants to engage with us.”
When asked what success in its effort would look like, Chadwick also didn’t rule out a higher bid from Netflix, but said the streamer’s deal has a higher regualtory risk.
“Certainly this creates competitive tension. That’s what you want in this situation. You want two parties that can actually compete and have an incentive and the mechanism to compete to put the best value forward,” he said. “My concern with Netflix is obviously the regulatory pathway more than value. In their circumstance, I think their road to approval is much harder, probably harder in Europe than it is in the US. Quite honestly, their market share there is much higher.”
While acknowledging that Netflix’s deal could have a pathway to success, he argued that it “really isn’t close in terms of which one has the has the more difficult regulatory burden.”
Chadiwck added that a Paramount-Warner Bros combination would put David Ellison “on the map globally as a major player in the streaming market” and give them ” almost the same subscription base as Disney and its related properties.”
“It creates real, real competition, which is something that’s good for consumers, it’s good for the industry, whereas the opposite would be true [with Netflix], in my opinion,” he said.
Warner Bros. Discovery’s board said it would “carefully review and consider” the proposal, but noted that it wouldn’t change its recommendation on the Netflix deal.
The board is advising shareholders to not take any action at this time and will provide an update on its decision with regard to the latest Paramount offer following a review and consultation with its financial advisors Allen & Company, J.P. Morgan and Evercore and legal counsel Wachtell Lipton, Rosen & Katz and Debevoise & Plimpton LLP.
“WBD’s experienced and independent Board and management team have a proven track record of acting in the best interests of the Company and shareholders – as evidenced by the extensive actions they have taken to unlock the full value of WBD’s unmatched portfolio of assets over the last year,” a spokesperson told TheWrap on Wednesday. “We remain resolute in our commitment to maximize value for shareholders.”
The latest twist comes as 42.3 million shares have been validly tendered to Paramount as of Monday, a 75% decline from its prior disclosure of 168.5 million shares tendered on Jan. 21 and a small portion of WBD’s total 2.48 billion outstanding shares. Investors can withdraw their tender at any time before the Feb. 20 deadline.
Paramount also said it has complied with the Department of Justice’s second request for information on Monday as regulator reviews its tender offer. The waiting period will expire 10 calendar days after Paramount certified “substantial compliance with such request” at 11:59 p.m. ET. However, even if Paramount’s bid clears the Hart-Scott-Rodino (HSR) review period, the DOJ can still investigate or challenge a potential deal with Warner Bros.
Additionally, Paramount said it received clearance from foreign investment authorities in Germany on Jan. 27, though that only addresses national security concerns and is one of more than a dozen foreign investment clearances needed. European regulators can still investigate the deal for potential antitrust concerns. An insider familiar with the matter told TheWrap that Netflix has also received similar clearance in Germany and is at the same stage of the regulatory review process.
In addition to the latest bid, Paramount has launched its own proxy battle and is urging shareholders to vote against the Netflix deal as well as the pending spinoff of Discovery Global. Shareholders are expected to vote on the Netflix deal by April. It is expected to close within 12 to 18 months, pending regulatory approval.
