Warner Bros. is targeting Discovery Christmas for sale or split plans; Paramount is in limbo

Paramount Skydance He has a clear holiday desire this year: gain Warner Bros. Discovery. Conveniently, you will have to wait until Christmas to find out whether Santa Zaslav and the WBD Board of Directors will fulfill their commitment.

WBD It is publicly listed for sale and intends to publicly announce its plans in mid- or late-December, according to people familiar with the matter, who requested anonymity because the discussions are private. The legacy media giant, run by CEO David Zaslav, is deciding whether to split the company in two, sell some assets or sell the entire company.

Paramount has sent multiple letters to WBD’s board explaining why its offer would be more valuable to shareholders than splitting the company, suggesting that negotiations could become more aggressive if WBD chooses other options. CNBC reviewed versions of the letters.

Part of Paramount’s October 13 letter specifically outlines the company’s argument that its latest offer of $23.50 per share “provides superior value” to WBD shareholders compared to any reasonable plan to break up the company.

About a week after receiving that letter, WBD said it would begin “a comprehensive review of strategic alternatives to determine the best path forward to unlock the full value of our assets.”

The sale was officially launched after WBD announced in June that it would split into two companies — a broadcast and studio company that will be called Warner Bros., which will include WBD’s film properties and streaming service HBO Max, and a global networking company called Discovery Global, which will include CNN, TNT Sports and Discovery, among others. Both companies will trade publicly on their own.

Strategic options are not mutually exclusive. Given the expected regulatory approval process of a year (or more), splitting the company in two and then selling one or both parts would be the most tax-efficient way to sell, according to people familiar with the matter. The split, which is expected to be completed by April, is a tax-free transaction.

Comcast and Netflix CNBC has expressed interest in acquiring the studio and streaming assets, CNBC previously reported. If Warner Bros. decides to Discovery that its best path to value is to sell Warner Bros., plans to make that announcement in December, before the split occurs, the people familiar with the matter said.

Comcast Chairman Mike Kavanagh said last week during the company’s earnings report that such an acquisition would complement its NBCUniversal business after Versant’s tenure.

Warner Bros. announces Discovery reported third-quarter earnings Thursday morning.

Warner Bros. refused. Discovery received three different offers from Paramount to fully acquire the company. The latter, for $23.50 a share, consists of 80% cash and 20% stock, CNBC reported last month.

Paramount executives are willing to wait and see if Warner Bros.’ board of directors… Discovery will decide to enter into amicable sale discussions, according to people familiar with the company’s thinking.

But if WBD stumbles on its decision or decides to move in a different direction, Paramount has discussed making a direct offer to shareholders and formalizing a hostile bid for the company, the people said.

Warner Bros. requested Discovery has signed a non-disclosure agreement that includes a freeze-up clause that prevents Paramount from launching a hostile bidding offer in exchange for access to its data room, according to people familiar with the matter. Paramount has not signed a nondisclosure agreement to keep its options open, one of the people said.

Warner Bros. spokespeople declined. Discovery and Paramount comment.

If Paramount appeals to shareholders directly, it will argue that its offer is superior compared to Warner Bros. Discovery’s closing price on Sept. 10, the day before the Wall Street Journal reported that Paramount was preparing a bid for the company. Warner Bros. has closed. Discovery at $12.54 per share on September 10. The $23.50 per share offer is 87% higher than the so-called “unaffected share price.”

Warner Bros. will have to Discovery convinces its shareholders that splitting the company or merging one of its units with another entity, such as NBCUniversal, is more favorable to shareholders than an outright sale.

Paramount has already shown the math to Warner Bros. Discovery in an October 13 letter obtained by CNBC. Here’s the argument in the letter to the Warner Bros. board of directors. Discovery and signed by Paramount Skydance Chairman and CEO David Ellison:

Paramount could also discuss its deal for the entire Warner Bros. franchise. Discovery is well-positioned for regulatory approval, given President Donald Trump’s recent kind words for Ellison and his father, Larry, who is one of the richest people in the world and could contribute tens of billions of his own personal money to help finance the deal.

“I think you have a great new leader,” Trump said of David Ellison during an interview on “60 Minutes” last week. “I think one of the best things that’s happened is this show and the new ownership and CBS and the new ownership. I think this is the greatest thing that’s happened in a long time to a free, open, good press.”

In stark contrast, Trump has repeatedly attacked Comcast CEO Brian Roberts, including calling him a “lowlife” and “slime ball.”

Some analysts expect Comcast to try to structure a deal with Warner Bros. Discovery will spin off NBCUniversal and combine it with its studio and broadcast assets.

It is not clear whether shareholders will be optimistic about the future prospects of Discovery Global or Warner Bros. As independent entities.

Discovery Global’s family of linear cable networks, such as TNT, TBS and CNN, are facing declining advertising rates as well as annual cable subscriptions falling by the millions.

Warner Bros.’ HBO Max may acquire and Warner Bros. film studio. A significant share of M&A in a sale if Comcast, Paramount and Netflix are potential buyers, but the price would have to be high enough to convince WBD shareholders that it is a better option than selling the entire company.

However, even if Paramount decides to make a bid directly to shareholders, tender offers are no guarantee of success.

A minimum of only 20% of Warner Bros. shareholders is needed. Discovery who have held the stock for at least a year to call a special meeting to counter a potential hostile bid, according to a company filing. Warner Bros. shareholders might argue that Discovery in the long term that current management and the Board of Directors are the best stewards of the company.

Disclosure: Comcast is the parent company of NBCUniversal, which owns CNBC. Versant will become the new parent company of CNBC based on Comcast’s planned spin-off of Versant.