Three Offers in One Month: Paramount’s Secret Pursuit of Warner Bros. Discovery

Over the course of four weeks, Paramount made three offers to buy Warner Bros. Discovery, ratcheting up the financial stakes of a deal that would reshape the media landscape.

But all of the overtures, which started in mid-September and continued through earlier this month, were rebuffed, including Paramount’s offer that Warner Bros.’ chief executive, David Zaslav, could stay on as co-chief executive and co-chairman of a combined company.

The details of these secret bids were described in a letter that Paramount’s chief executive, David Ellison, sent to Warner Bros.’ board of directors and that was reviewed by The New York Times.

The full contents of the letter have not been revealed until now. But they help explain what prompted Warner Bros.’ announcement on Tuesday that the company was up for sale.

The move essentially kicked off a frenzy of interest from other potential suitors this week, including Comcast and Amazon. If they bid, that could pressure Paramount to further increase its offer.

Paramount’s first bid was for $19 a share, before moving up to $22 in late September.

Paramount’s latest bid was delivered on Oct. 13, offering to pay the company’s shareholders $23.50 a share in cash and stock, according to the letter. That offer represented a 52 percent premium to Warner Bros. Discovery’s share price before its intent to make a bid for the company was first reported on in early September.

On Wednesday, Warner Bros. shares closed at $20.53.

A takeover of Warner Bros. Discovery by Paramount would be a tectonic shift for the media industry. It would combine two of the largest Hollywood studios, Warner Bros. and Paramount, granting huge clout at the box office and putting CNN and CBS News under the same corporate umbrella, which would give the new company enormous sway over the news industry. It would combine Paramount+ and HBO Max, two of the biggest streaming services, bringing the company’s movies and shows into hundreds of millions of living rooms.

“We are confident that we are the best partner for WBD, with a combination of our two companies creating a scaled Hollywood champion to the benefit of both our companies’ shareholders, consumers, and the entertainment industry at large,” Mr. Ellison wrote.

Warner Bros. Discovery’s announcement on Tuesday indicated that the company still wanted to consider other paths. That includes the plans to split the company into two, which it first announced in June, as well as the evaluation of rival bids.

In the letter, Paramount argued it was Warner Bros.’ only viable suitor, contending that any rival offer was likely to come from a bigger company that would invariably invite regulatory scrutiny. And Mr. Ellison argued that a deal would create a more formidable competitor to these giants.

“Other potential acquirers of WBD — today or in the future — would need to overcome significant (perhaps insurmountable) hurdles given their dominant market positions” Mr. Ellison wrote.

Analysts say no bidder, including Paramount, will be able to escape close regulatory scrutiny given how consolidated the media industry has become and President Trump’s longtime animus for CNN.

Paramount already owns a significant movie studio, and Comcast abandoned its bid for Time Warner Cable in 2015 amid antitrust scrutiny.

Amazon has more than 200 million subscribers, making it the country’s second-largest streamer, behind Netflix. It has also faced antitrust scrutiny in Europe, where regulators would also need to approve any deal.

Political considerations may also factor into a review, analysts said.

“One of the things that I think would be really critical here is the politics behind it: Which one would Donald Trump like or not like?” Peter Cohan, a professor at Babson College said. “Would he be willing to do things because some one of his supporters got involved?”

David Ellison’s father, Larry Ellison, who is backing the bid, is friendly with Mr. Trump and that relationship could help the company in the review process, analysts have said. Analysts have also pointed to Mr. Trump’s longtime criticism of Comcast’s chair, Brian Roberts, whom he has attacked on social media.

Comcast declined to comment. Paramount and Warner Bros. Discovery also declined to comment.

Mr. Ellison, 42, the newly minted media mogul who this summer closed a deal to take control of Paramount, has since spent freely to reposition the company. He has licensed rights in the United States for the Ultimate Fighting Championship, poached the “Stranger Things” creators from Netflix and acquired The Free Press, an online news site.

“Our recent slate of exclusive content deals is a good indicator of the types of investments we would be able to achieve on a combined basis,” Mr. Ellison wrote.

In the letter, Mr. Ellison makes the case for why selling is a better path than pursuing a breakup, currently scheduled to take place in April. Warner Bros. Discovery’s cable business, he argues, will face significant pressure after having lost the rights to the N.B.A. And its streaming business, which includes HBO Max, will struggle to compete against larger competitors like YouTube and Netflix.

In his letter, Mr. Ellison said that analysts, on average, expected value per share to shareholders in a Warner Bros. Discover breakup to be around $15 a share — far below its takeover price of $23.50 a share.

The letter lays out other efforts Paramount has made to sway the Warner Bros. board: It has increased the portion of the deal paid in cash to shareholders from 60 to 80 percent. It has also increased the fee it would pay to shareholders in the event a deal is not approved from $2 billion to $2.1 billion.

Benjamin Mullin contributed reporting