What to know about hostile takeovers, as Paramount challenges Netflix bid
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Paramount launched a hostile takeover bid to buy Warner Bros. Discovery. Photo illustration by Cheng Xin/Getty Images
Paramount on Monday launched a hostile takeover bid for Warner Bros. Discovery, as the company tries to circumvent its competitive bidding defeat by Netflix last week.
The big picture: Paramount's argument is that its all cash, $30-per-share offer is a better deal for shareholders than Netflix's $83 billion deal — and more likely to surmount regulatory roadblocks.
By the numbers: Paramount's hostile bid values the entirety of the Warner Bros. at around $108 billion.
- Netflix's bid valued Warner Bros.'s studio and streaming assets at nearly $83 billion.
What they're saying: "We believe the WBD Board of Directors is pursuing an inferior proposal which exposes shareholders to a mix of cash and stock, an uncertain future trading value of the Global Networks linear cable business and a challenging regulatory approval process," Paramount CEO and Chair David Ellison said in a statement.
The other side: "Today's move was entirely expected," Netflix co-CEO Ted Sarandos said on Monday at the UBS Global Media and Communications Conference in New York when asked about Paramount's bid.
- "We have a deal done, and we are incredibly happy with the deal," Sarandos said.
- "We think it's great for our shareholders. We think it's great for consumers. We think it's a great way to create and protect jobs in the entertainment industry."
Between the lines: Warner Bros.' sale has rattled creatives who view a deal as eliminating options for pitching movies and shows and further shrinking the job market.
Here's what to know about hostile takeovers:
What a hostile takeover is
How it works: A hostile takeover occurs when one company makes an unsolicited offer to buy another's shares, without the approval or consent of the target company's board of directors, according to Cornell University's Legal Information Institute.
- The takeover is "hostile" because the target company's management "is not in favor of the takeover," according to Cornell.
Context: Hostile takeovers were popular in the 1980s, but unsolicited takeover bids afterward decreased in number, becoming relatively rare in the last decade, corporate lawyer Kai Liekefett wrote in Ethical Boardroom Magazine in 2020.
- "The hostile takeover became the defining symbol of U.S. style capitalism, encapsulated in the 1987 movie classic 'Wall Street,'" Liekefett wrote.
Zoom in: There are two typical ways a hostile takeover happens.
- There's a tender offer — the Paramount case — when one company offers to purchase the shares.
- "The goal is to acquire enough voting shares to have a controlling equity interest in the target company, usually over 50% of the voting stock," per Cornell.
- The other common method is a proxy vote, which is when a company tries to persuade existing shareholders to vote out the current management.
What they're saying: "We are offering shareholders $17.6 billion more cash than the deal they currently have signed up with Netflix," Paramount CEO David Ellison said Monday in an interview with CNBC.
- "We believe when they see what is currently in our offer, then that's what they'll vote for.
How a company could respond to a hostile takeover
What we're watching: There are several ways for target companies to respond to hostile takeover attempts, per Cornell University.
- The "poison pill" strategy involves "diluting the equity interest by allowing current shareholders to purchase new shares at a discount," for instance.
- The "golden parachute" strategy involves giving expensive benefits to key members of a company's management if they're removed following a takeover.
Of note: Examples of hostile takeovers include the investment firm Kohlberg, Kravis, Roberts & Co's 1998 acquisition of RJR Nabisco Inc. and Time Inc's takeover of Warner Communications in 1989.
- Kraft attempted a hostile bid for Cadbury in 2009, which the latter rejected, but Heinz eventually acquired the company after months of negotiations.
- Kraft (then Kraft Heinz) also unsuccessfully attempted a hostile takeover of Unilever in 2017.
The intrigue: Ellison's move mirrors those of Elon Musk, who made an unsolicited $43 billion bid to acquire a majority stake in Twitter (now X) in 2022.
- In response, Twitter adopted the poison pill strategy, making the company more expensive to acquire.
- Musk eventually did acquire Twitter for $44 billion, took the company private, and renamed it X.
Go deeper: Jared Kushner is part of Paramount's hostile bid for Warner Bros. Discovery
