Trump’s starring role in the Warner Bros fight

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0:34Christopher Grimes: Two of the biggest media companies in America are trying to buy another massive media company. Paramount is ramping up its hostile takeover bid to buy Warner Brothers Discovery. Its deal with Netflix has not closed starting next year. And now the Trump administration is getting involved too. The Justice Department, again this came out Friday after the bell, launched an antitrust review of Netflix's bid for Warner Brothers Discovery. It's a battle that will reshape the way millions of Americans get their movies, news and television.

1:11Christopher Grimes: This is Swamp Notes, the weekly podcast from the Financial Times, where we talk about all of the things happening in U.S. politics, finance and the economy. I'm Sonia Hudson, and this week we're asking, what's at stake for U.S. President Donald Trump and the Trump administration in a Warner Brothers merger? Here to break all this down is Chris Grimes. He's the FT's L.A. Bureau Chief. Hi, Chris. Hi. And we've also got Oliver Barnes, the FT's U.S. Deals and Activism Correspondent. Hi, Oliver.

1:41Oliver Barnes: Hello.

1:42Christopher Grimes: Okay, so you both have been covering this extensively, but let's just start at the beginning of this very long and complicated saga. So Chris, can you give me a sense of these three players? We've got Netflix, Paramount, and Warner Brothers. What are these companies and why are they important? Sure. So Netflix is the company that started out as a DVD by mail company in 1997. And then it became over time this huge disruptive force after it launched its streaming service about 10 years later. So then Paramount's a century-old studio that gave us The Godfather, Titanic, Top Gun, Transformers, one of my favorites, Chinatown.

2:23Christopher Grimes: And for years, it was run by a big conglomerate by Sumner Redstone. But that family kind of lost the plot, and that allowed David and Larry Ellison to scoop it up for a song last year. And then Warner Brothers is arguably the greatest of the Hollywood studios. And so it's been desired by would-be moguls for decades. often with disastrous consequences like the AOL Time Warner deal early in the century. And really, the Warner Brothers Discovery deal in 2022 was not so great for shareholders until this auction of the company kicked off a few months ago. And Oliver, can you tell us about the merger fight?

3:04Christopher Grimes: When did this all kick off?

3:06Oliver Barnes: Yeah. So as Chris said, Discovery, which was run by this guy, David Zaslav, who's the head of WBD now, merged with Warner a few years back. And ever since it came into existence, it always struggled. Like the shares were pretty much were flat or down most of the time. And then Zaslav hatched a plan basically to break up the company. And that plan was hatched kind of earlier last year and was unfolding over summer. And then while that was in motion, Paramount, which is run by David Ellison, the son of Larry Ellison, who owns Oracle, came along. They've been building their own kind of media empire after taking Skydance, took over Paramount, and then said, we want to eat the even bigger competition.

3:49Oliver Barnes: So they came knocking in September with a bid for Warner Bros. And then this all kicked off out the back of that. They came again, and they came again. And then Warner Brothers made it into a wider process. And that's when Netflix and Comcast got involved. And then right in the run up to Christmas in early kind of December, Netflix ends up winning the bidding war, which is to a lot of people's surprise. I mean, me and Chris were following this the whole time it was happening. And I really thought that Paramount was probably going to get it. And I think most people around Paramount thought they were going to get it until the days before the Netflix deal.

4:26Christopher Grimes: But that was not the end of the story, right?

4:28Oliver Barnes: And it was not. They were kind of, they felt a bit jilted by it. It was much their chagrin. And And then a few days later, Paramount comes back with a hostile offer, you know, basically put the same$30 a share bid for the whole business that it offered at the end of the kind of private process. It put that to share to Warner Brothers shareholders and said, do you want this or not? And over the past couple of months since then, we've been caught in kind of what I call WBD purgatory. You know, it's like the store is the deal that never ends. But at this point, they've done the hostile bid. They're launching a proxy fight to overturn Warner Brothers board and get a bunch of sympathetic board directors on there.

5:07Oliver Barnes: And they've also sweetened their offer ever so slightly. So, yeah, I mean, basically we're in the middle of a relentless campaign by Paramount to try and convince Warner Brothers to come back to the table and eschew Netflix.

5:19Christopher Grimes: What would it mean for the corporate landscape for either of these companies to acquire Warner Brothers? Well, it has huge repercussions for Hollywood one way or the other, because one of the things that people here are really worried about is if you get Paramount and Warner Brothers and combine them. These are two old legacy studios and they have a lot of overlap. So there's a worry that there'll be just fewer buyers out there. So the market becomes smaller in a way for people who sell content. That's one issue. And I think there's a lot of concerns about job cuts, particularly with Warner and Paramount, which have a lot of this overlap.

6:01Christopher Grimes: On the other hand, there's Netflix, which could become, you know, they'd have HBO. They'd have all of this amazing Warner Brothers library. They already have 300 plus million subscribers around the world. So all the remaining players are going to have to adapt. That's, you know, that's Disney. That's Comcast. And so, yeah, you'll have this pretty massive company in Netflix with Warner Brothers if that's what happens.

6:28Oliver Barnes: And this is like a kind of broader theme that we're seeing across deal making at the moment, which is, you know, under the Biden administration, they had quite strict antitrust enforcement. Under Trump, CEOs feel pretty empowered and they're like, we can put a call in, we can make this happen. So deals like this, where it's not just consolidation, it's kind of like hyper consolidation. There's already a consolidated industry, right? Deals like this are possible. And if you look at both Netflix's deal and actually the rival bid from Paramount, both of them probably under Biden would have struggled to get through antitrust review.

7:03Christopher Grimes: That's really interesting. Let's talk a little bit more about President Donald Trump's influence. You know, we've talked about the impact that he's had on media before. He's sued lots of news organizations. Trump, we should also note, is close with Oracle co-founder Larry Ellison, and his son David Ellison is the CEO of Paramount. Chris, how exactly has the Trump administration gotten involved with this battle for Warner Brothers? Well, as we've talked about in other Swamp Notes, Trump is obsessed with Hollywood. He's obsessed with the media. He's obsessed with television. And these two deals cross all of those hotspots for Trump.

7:44Christopher Grimes: So he's he's commented a lot, sometimes contradicts himself on it. He has praised Netflix CEO Ted Sarandos, who he's compared to the legendary studio boss Louis B. Mayer. But he also says, well, their market share will be a little too high. Netflix is a great company. They've done a phenomenal job. Ted is a fantastic man. I have a lot of respect for him. But it's a lot of market share. He said he was going to be involved in the deal, and then he said he wouldn't be involved in the deal. He's personally bought bonds in both Netflix and Warner Brothers. So now he's got skin in the game, right? You know, even if he says he's going to stay out of it, I think the people who are going to be making these decisions are going to be looking over their shoulder at what signals Trump is giving.

8:32Christopher Grimes: And it's not just what Trump says, right? There is a legal angle to what's going on here too.

8:38Oliver Barnes: Well, there's always like the architecture of antitrust and then the reality of antitrust. And of course, there's kind of lots of laws like codifying all of this. But just like yesterday, the chief official at the Department of Justice on antitrust, Gail Slater, who would have been behind all the reviews of this deal, resigned. Wow. So there's chops and changes happening atop the division that would be looking at Netflix's deal or at Paramount's deal. Last week, we reported that the DOJ has been reaching out to rival media groups and effectively beginning its due diligence on the deal. And what it's asking of the companies that it's reaching out to is twofold.

9:25Oliver Barnes: Number one, it's getting to understand how this would lessen competition in the industry. It's also understanding whether Netflix is behaving as a monopolist. Now, this is not a full-blown lawsuit, but this is the early stages of an investigation into Netflix's deal, which could, of course, end up in it maybe being blocked, right? That opens up a possibility. But I think the best way of understanding the kind of antitrust review and how it unfolds under this is there's kind of two things happening concurrently. There's all the process and that process will unfold and its path may be different now that Gail Slater is no longer atop the DOJ's antitrust division.

10:05Oliver Barnes: But then there's also how this deal sits in the ever-changing mind of Donald Trump. And if Donald Trump nudges the infrastructure of DC one way and another in favor of the Netflix deal or the Paramount deal, that could have a major effect. It's possible that Paramount's deal, which of course Warner has not engaged with, but is still kind of unfolding concurrently. It's possible that may get the early stage green light under Hart Scott Rodino in the not too distant future. And that would be a really big win for Paramount. That would help them in their case that they're making to WBD shareholders.

10:44Oliver Barnes: Number two, Donald Trump, say he comes out and says, I actually do want to block this deal or that deal. That, of course, affects and can persuade WBD shareholders in one way or the other. So there's kind of two different threads to this story on the antitrust side of it and how it unfolds.

11:00Christopher Grimes: There's also this really interesting fight between the two companies to control the narrative on this. So a couple of weeks ago when Netflix reported their results, they were talking about how their deal strengthens the marketplace and ensures healthy competition. And they're really pushing this at every chance that they have an opportunity to speak publicly. They're trying to push this narrative. And then Paramount is offering the exact opposite narrative, saying that Netflix would become this behemoth that has outsized power. will continue to see this influence campaign, both publicly and I'm sure in Washington with lobbyists.

11:40Christopher Grimes: Is the way that the Trump administration, both in terms of President Donald Trump himself and the Department of Justice antitrust process, has the way any of that has unfolded been unusual?

11:54Oliver Barnes: In a way, no. I mean, Netflix's deal is huge, right? It's the biggest streamer consolidating the third biggest streamer. It would always get looked at by antitrust enforcers. And I think most people on the Netflix side would expect that and would expect a high degree of scrutiny. What's unusual about it, as Chris detailed earlier, that the president's kind of significant level of involvement, like I will opine on this, I won't opine on this, I will buy bonds in both companies. I mean, that is unusual. And the one thing about Trump is he's unpredictable, right? And in a way, what's striking about all of this, and just the interplay between corporate America and DC is when you kind of wind the clock back.

12:35Oliver Barnes: You're like, look, Larry Ellison is one of Trump's backers. There's a very tight relationship there. And he always had the belief, and David Ellison has always had the belief they could kind of put a call in and win with the Trump administration. But then on the other side, Netflix and Ted Sarandos have done a very good job of wooing Trump. My conviction on this though, is it really just comes down to cash. And at the moment, there's a debate to be had on whether Paramount's deal or Netflix's deal is better. And clearly WBD's board have gone in favor of Netflix's deal. If Paramount comes with a couple dollars extra share, that debate will be over.

13:13Christopher Grimes: All right, I think that's a good place to take a quick break. We will be right back.

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14:04Christopher Grimes: So a lot of this antitrust news has happened this week, but going back to the deal making, what has happened there this week?

14:13Oliver Barnes: Sure. So we've had a few things. It's always eventful in this saga. So Ancora, pretty well-known activist hedge fund, bought a$200 million stake in Warner Brothers and basically said, we're going to come out and vote down the Netflix deal. But$200 million is not a huge stake. But the narrative wise, it's obviously helpful for Paramount. They want Warner shareholders to vote down the Netflix deal. Day after, Paramount comes and swedens its offer. It didn't sweden its offer in terms of upfront cash. cash. What it said instead was it would offer an additional 25 cents in quarterly payments if the transaction fails the close by the end of 2026.

14:51Oliver Barnes: And then even yesterday, there was another twist to this. We've reported that Paramount enlisted one of Warner Brothers' biggest shell, there's Pentwater Capital Management, as a potential board nominee on its proxy fight slate. So this whole saga, this battle, it's relentless and it's eventful and it's not stopping. And it probably won't stop. We won't get a conclusive answer until that shareholder vote in March when Warner Brothers shareholders come out and say, we like Netflix's deal or we don't like Netflix's deal.

15:22Christopher Grimes: Yeah. So, you know, Oliver, like you mentioned, there's just been a total fire hose of news about this story this week. What's your reaction to everything that's unfolded?

15:32Oliver Barnes: At this stage, I just want it to end. I just I want it to end like my my instinct all along has been that paramount will triumph in this. And I kind of, I said that on record on another podcast like a few weeks ago, and I'll say it again now, I stick by it. I think in that narrative battle, they are winning it. I think that that's cutting through in DC, where of course there'll be like antitrust reviews. I think it's also might've cut through in Europe too. And it's likely that the antitrust enforcement that we see there from, you know, the UK antitrust authorities or the European Union antitrust authorities, That would probably be more intense than what's faced in the US.

16:12Oliver Barnes: So my instinct is that by hook or by crook, Paramount will win it. And that's because they want it more, I think. For Netflix, this is a kind of interesting strategic move and nice to have. But for Paramount, they're a small media group. You know, they're a storied studio and Skydance, which basically like made Mission Impossible. I'm not sure what else. They're small. And David Ellison has big ambitions. and I still think they may end up bumping their offer at some point in time and they reserve the right to do that. Small headwind against that, though. The money behind it, Larry Ellison is the main backer of all this, the Oracle founder.

16:50Oliver Barnes: Oracle's stock has traded down a lot in the last few months that's backstopping this deal. So maybe just has a bit less money to sweeten the bid, but I still think they end up triumphing.

17:01Christopher Grimes: All right, Chris, Oliver has very boldly placed a prediction on this saga. What about you? Do you have a sense yet of who's going to walk away victorious? Well, I agree that Paramount needs it more. So what we all thought and Netflix's executives have kind of said this, that, you know, they went to have a look under the hood when Warner Brothers went on the block. and they say that once they got in there, they really liked what they saw and became persuaded that this was something that they really wanted and that they were willing to pay a lot of money for. So I think Paramount needs it. I think it's a nice to have thing for Netflix.

17:44But even once

17:46Christopher Grimes: Paramount, if Paramount does triumph and it does get Warner Brothers, it's got this. Remember, they Skydance just bought Paramount a few months ago. So they're at the beginning of integrating, making that company into one company. Then they're going to take on Warner Brothers, an even bigger company. And this is, I think this is underrated by how big a job it is to put all of this together. It's going to take time. And meanwhile, the competitive landscape is changing really fast. YouTube has come on like a house of fire in the last couple of years and is the leading streamer on television now, on people's televisions.

18:30Christopher Grimes: So I do think it's a complicated deal for Paramount, but I think Paramount does need it. They need it more than Netflix does. All right. Well, I'm sure there are plenty of twists and turns yet in this story. We'll be keeping an eye out. I want to thank our guests, Chris Grimes. He's the FT's LA Bureau Chief. Thanks, Chris. Thank you. And Oliver Barnes, the FT's U.S. deals and activism correspondent. Thanks, Oliver.

18:56Oliver Barnes: Thank you very much.

19:04Christopher Grimes: This was Swamp Notes, the U.S. politics show from the FT. If you want to sign up for the Swamp Notes newsletter, we've got a link to that in the show notes. Our show was produced by Henry Larson, and it was mixed by Sam Giovinco. Special thanks to Pierre Nicholson. I'm your host, Sonia Hudson. Our executive producer is Topher Forges, and the FT's global head of audio is Cheryl Brumley. Original music by Hannes Brown. Check back next week for more U.S. political analysis from the Financial Times.

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20:25Christopher Grimes: Learn more. Search Imperial Business School.