The news on Monday morning that Paramount is mounting a $30-a-share hostile bid for Warner Bros. Discovery was a big surprise, not only because WBD’s agreement announced last week with Netflix made it seem like a fait accompli but also because hostile corporate takeover bids are so rare these days.
Most acquirers now opt for a friendly, negotiated approach to avoid the headaches and costs that come from mounting an unwelcome offer. An increase in activist shareholder activity has supplanted the need for an actual takeover bid as well.
What’s more, an increasing number of “poison pill” plans, a financial tactic or provision used to make an unwanted takeover prohibitively expensive or less desirable, have been put in place at companies to ward off hostile bids. Then there are the regulatory issues and challenges that come with winning over the shareholders (campaigning them, really) of target companies with a tender offer.
It’s no surprise then that academics and others have pegged the success rate of hostile bids at between 20% to 40% over the past two decades.
That brings us back to Paramount and CEO David Ellison’s desire to let his premium-rich $30-a-share do his talking for him with WBD shareholders. The bid represents a 140% premium to where WBD shares were trading on Sept. 10 just before news leaked that Paramount was planning a bid.
A spokesperson for WBD did not immediately respond to a request for comment.
Another advantage is that WBD does not have a poison pill plan in place right now and that just 20% of shareholders are required to call a special meeting to vote on unsolicited offers. It’s unclear whether WBD is considering a poison pill plan.
“Today most companies do not adopt a poison pill until a hostile bid is made. This keeps them out of trouble with institutional investors and the proxy advisers — until a hostile bid is made,” John Coffee, a corporate governance expert and a professor at Columbia University’s law school, told TheWrap.
The pills have been an effective defense.
Just last month, E.W. Scripps adopted a limited duration shareholder rights plan, including a poison pill, after receiving a takeover bid from its rival Sinclair Broadcasting.
Scripps said the plan is intended to protect shareholders from “coercive tactics” and to provide the board with time to “thoroughly evaluate the offer and any other potential strategic alternatives.”
In 2022, hedge fund Alden Global Capital made an unsolicited offer of $24 a share to acquire newspaper publisher Lee Enterprises, including a proxy contest to replace board members — a classic hostile-takeover strategy. Lee resisted via a poison pill, rejected Alden’s offer, and successfully defended the board.
More famously in Hollywood lore, Lionsgate adopted a poison pill in 2010 to thwart multiple hostile takeover attempts by legendary investor Carl Icahn who was among the storied corporate raiders of the 1980s who helped define the “Barbarians at the Gate” era.
Columbia’s Coffee said that the case of Paramount might just be an anomaly. “Hostile bids are seldom winners, unless the bidder can win a proxy contest to take control of the board. But I suspect that most of Hollywood is on Paramount’s side, as is a certain occupant of the White House, which means to me that you can ignore the usual statistics and see this as a case with powerful allies on Paramount’s side who can block or postpone forever Netflix’s bid.”
It’s not to say that having deep pockets, as the Ellisons do, could also provide an advantage.
After all, Ellison’s father, Larry, a co-founder of Oracle, won a $10.3 billion hostile takeover of PeopleSoft in 2004. All told, Oracle made six offers for PeopleSoft. Paramount had made six offers for WBD before going with its hostile offer.
Then there is Elon Musk and his successful hostile bid for Twitter in 2022. The Twitter board did adopt a poison pill but eventually accepted Musk’s $44 billion takeover offer.
Rupert Murdoch has also demonstrated how a substantial offer for shareholders can pave the way to a big media deal — even when the company isn’t officially on the market.
In 2007, Murdoch made an unsolicited $5 billion bid for Wall Street Journal-parent Dow Jones. At the time, Murdoch’s $60-a-share offer marked a 65% premium over Dow Jones’ most recent share price and put pressure on the majority-owning Bancroft family to take him seriously. Despite the family’s initial reluctance, and newsroom concerns about editorial independence, Murdoch’s bid couldn’t be beat, and by the end of the year he was able to formally add one of journalism’s crown jewels to his media empire.
Ellison is hoping he’ll be similarly successful. But Murdoch didn’t have a $39 billion-a-year streaming giant standing in his way.
Media Editor Michael Calderone contributed to this report.
