Paramount-Warner fight shows the hostile takeover is back. So are the egos of the combatants

If there were any doubts that hostile corporate takeovers, which went into a decline after their heyday in the 1980s, are back, the $78-billion hostile bid by Paramount for Warner Bros. Discovery should put them to rest.

The bid by Paramount, which is controlled by the family of billionaire Larry Ellison, has many of the features of hostile corporate bids of the past. What the pursuers typically bring to the table are boatloads of money, typically well into the billions, and ego.

It’s the second factor that often keeps takeover bids alive long after the proposed deals lose their economic rationality. Once the bidders state their intentions publicly, they become increasingly reluctant to be seen as losers. Indeed, the drama of the dealmaking often exceeds its dollars-and-cents logic.

The drama is at least part of what has captivated the business and entertainment worlds about the battle for Warner. Paramount’s hostile bid, which was formally announced Monday, has thrown a monkey wrench into a deal for much of Warner Bros. Discovery submitted by Netflix — which received the blessing of the Warner board only four days earlier. The board says it has the Paramount bid under consideration.

Paramount Chief Executive David Ellison’s comments about the bidding for Warner exudes personal pique over the target’s failure even to respond to his last bid for the company.

The board is tasked with weighing the comparable values of the two offers for shareholders. The Netflix bid is for only part of the company — Netflix had offered $72 billion — or $27.75 a share — for a big chunk of the company: the Warner Bros. film and television studios, which hold the rights to Batman and Harry Potter, among the company’s iconic assets; its Burbank lot; and HBO and HBO Max.

The rest of Warner Bros. Discovery — Warner’s basic cable channels, including CNN, TBS, Food Network and TLC — would be spun off as a separate company, which Warner estimates would be worth $3 to $4 a share, making the total value of the bid more than $31 a share.

Paramount’s bid stands currently at $30 per share, for the entire company.

Netflix’s apparent victory had brought its stock price to $103.22 on Dec. 4. Since the announcement of Paramount’s bid, it has fallen by about 9%, suggesting that shareholders are rattled by the possibility that the streaming service may lose out.

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But Paramount is by no means a certain winner, at least not judging by the historical record of hostile takeover bids. As my colleague Queenie Wong reports, only about 29% of hostile bids since 2020 have been successful when counter-bidders emerge.

Hostile takeovers tend to come and go in waves. A 2020 Harvard Law School forum pointed to one such wave in the 1980s, when corporate raiders such as Carl Icahn and T. Boone Pickens struck fear into corporate boardrooms.

“The hostile takeover became the defining symbol of U.S. style capitalism,” the forum reported. In 1988, for example, 160 companies faced unsolicited takeover bids. (Icahn and Pickens were accused of seeking only “greenmail,” using their takeover threats to extract generous ransom payments to go away.)

What stemmed the tide in that era was the development of effective corporate defenses such as “poison pills,” which capped the ability of outsiders to accumulate a large position in a company’s stock without board approval.

Another factor was the bull market in stocks, which drove up the cost of a hostile stake. Strengthened antitrust enforcement, furthermore, increased the uncertainty of government approval of hostile bids from within a target’s own industry.

The 2008 stock market crash and the pandemic-related crash in 2020 cleansed the market of at least some of its froth, making many hostile bids more inviting.

Although the broad market has recovered from those reversals, many potential targets are still trading below their pre-recession peaks.

“Companies, many of whom enjoy enviable market positions, are affordable now for competitors, private equity funds and other potential acquirors, including hostile bidders, even at significant premiums,” the 2020 Harvard forum observed.

Under Trump, meanwhile, antitrust enforcement has ebbed — or at least seems to have become more responsive to his personal influence. Trump seems to have put his thumb on the scale against Netflix’s bid for Warner: As my colleague Meg James has reported, Trump has said that Netflix’s deal “could be a problem,” citing the companies’ combined share of the streaming market. Trump said he “would be involved” in his administration’s decision whether to approve any deal.

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On the other side of the coin, Paramount’s bid for Warner is effectively coming from inside Trump’s house. The Ellison family is personally and politically aligned with Trump, and among those contributing financing to the bid, according to a regulatory filing Monday, is the sovereign wealth fund of Saudi Arabia, a country that has recently received lavish praise from Trump. Another backer is Affinity Partners, a private equity fund led by Jared Kushner, Trump’s son-in-law.

The filing states that the Saudi fund has “agreed to forgo any governance rights — including board representation,” a pledge designed to keep the deal out of the jurisdiction of the government’s Committee on Foreign Investment in the United States, or CFIUS, which must clear foreign investments in U.S. companies. Kushner’s firm has made the same commitment.

Among the successful hostile contests in history, those that have succeeded have done so after the pursuers raised their bids, sometimes substantially. The 2009-10 pursuit of Cadbury by Kraft Foods began with Kraft’s offer of $16.7 billion and ended when shareholders accepted a bid of $19.6 billion. InBev’s quest for Anheuser-Bush began with a bid of $46 billion and concluded at a price of $52 billion.

Those contests, like many others, involved months of trash-talking on both sides, and often foment internal warfare. That was the case with Hewlett-Packard’s pursuit of the computer company Compaq in 2001-02. The bid was the brainchild of then-HP CEO Carly Fiorina, who had made it a linchpin of her growth strategy and bet her reputation on its success.

But it was opposed by many large HP shareholders, including the Hewlett and Packard families. Walter Hewlett, the co-founder’s son, even mounted his own proxy fight to block the deal, but eventually Fiorina got it done.

Today, opinion about the merger is that as a strategy, it was the right thing to do, but Fiorina’s management of the merger was judged a mess. HP’s woes in the competitive computing market did not fade away, and Fiorina was pushed out in 2005.

Among the more notable flameouts was the hostile takeover of TWA by Icahn in 1986. The contest began with Icahn’s quest to drive up the price of the TWA stock he was holding, but he surprised the market by actually trying to run the airline.

He failed at that, in part because conditions were arrayed against him. President Carter’s Airline Deregulation Act had upended the industry’s economics. TWA’s unions, which originally saw him as a “white knight” to fend off an even more distasteful takeover by the union-busting tycoon Frank Lorenzo, also bought into Icahn’s promise to turn the carrier profitable, came to believe they’d been had and launched a 10-week strike.

Icahn’s takeover had loaded the carrier with debt. Within a month of his acquisition, it was the subject of a cover story in Fortune titled, “The Comeuppance of Carl Icahn.” But Fortune’s conclusion was premature. In 1988, Icahn took TWA private, in a deal that brought him more than $400 million in profit but left the airline larded with $540 million in new debt, bringing its total to $4 billion.

Two bankruptcy filings followed. What was left of TWA was acquired by American Airlines in 2001, and the carrier disappeared into the mists of history.

Many hostile takeovers succeeded because the assets at issue were relatively simple. The 1980s wave involved oil companies, with the pursuers largely seeking access to their targets’ oil reserves.

That may not be the case with the battle over Warner Bros. Discovery, whose varied portfolio includes entertainment production and distribution as well as the news channel CNN.

Whichever bidder emerges victorious, integrating all these components into a whole will demand varied strategies attuned to the individual components. The ultimate outcome of the battle may not be known for years.