Ellison’s lawsuit and proxy battle faces difficult odds of success, experts say, but could complicate and drag out the approval process for Netflix’s $83 billion deal
Even after eight rejections, Paramount CEO David Ellison remains undeterred in his mission to buy Warner Bros. Discovery. That obstinacy will lead to a lot of pain for all parties involved as the executive is taking his war with Netflix and WBD’s board to court.
Ellison filed a lawsuit in the Delaware Court of Chancery on Monday in an effort to extract more information about the Netflix deal’s terms and math behind its value, and is threatening to replace Warner’s board outright through a proxy battle. The plan? The Paramount Skydance CEO will try to sway shareholders to install a new slate of directors and make changes to the company’s corporate bylaws, arguing the current board is not acting in the company’s best interest by going with Netflix.
But similar to Paramount’s tender offer, which only garnered 400,000 shares as of Dec. 19 ahead of a Jan. 21 deadline, the nuclear option of a drawn-out legal challenge and proxy battle is a difficult one, experts told TheWrap.
“It’s a very hard case to prove the board has been shirking or falling short in their fiduciary duties to get the best possible value for the Warner Brothers Discovery shareholders. Dollars is their primary objective in this exercise,” Corey Martin, managing partner of Granderson Des Rochers LLP’s entertainment finance practice, said. “Without Paramount increasing their offer, there’s no incentive for the shareholders to vote for the Paramount slate. It all boils down to money and if they want this company, they’re gonna have to blow the Netflix bid out of the water.”
The move is just the latest wrinkle in the increasingly complicated saga of the Warner Bros. M&A race. While Paramount is hoping to find a weakness in the Netflix offer, experts say the lawsuit has a low chance of success and would only add further complications and delays to what is expected to be a protracted approval process. Shareholders are largely looking for a higher bid, which Paramount doesn’t seem willing to make as they’ve reiterated their “superior” $30-per-share offer in their flurry of press releases over the last few weeks.
Emarketer senior analyst Ross Benes told TheWrap that Ellison’s lawsuit comes off as “a desperate attempt by a company that didn’t get its way,” but warned that Paramount will “use all avenues available to press WBD into submitting to their will.”
“It’s unlikely the lawsuit alone will reverse the deal to be in Paramount’s favor,” Benes added. “But it is part of a broader strategy to keep pressing until something gives and then seizing on that opportunity.”
Ellison’s decision to take to the courtroom to get a deal done runs in the family. His father, Oracle co-founder and the second-wealthiest man on the planet Larry Ellison, didn’t hesitate to sue PeopleSoft back in 2003 in the midst of his hostile bid for the enterprise software maker, which had already struck a deal to merge with J.
