Democrats are understandably anxious about Paramount Skydance buying Warner Brothers Discovery, which could give a conservative family control of CNN and CBS, but they are wildly overreacting.
Despite fears that he might use his power to tip the scales, President Donald Trump never directly intervened in the bidding war for the storied studio. Paramount Skydance simply made a more lucrative offer, and Netflix decided it did not make financial sense to raise its bid.
Political cronyism has no place in corporate mergers or regulatory decisions. That’s why it’s alarming that prominent Democrats immediately issued threats to be more heavy-handed than Trump. “Paramount should enjoy its growing news monopoly while they have it because when Democrats win back power we are going to break up these anti-democratic information conglomerates,” tweeted Sen. Chris Murphy (D-Connecticut). “All of them.”
“Once we take power, whoever the president is, we’re going to break up your companies,” Sen. Ruben Gallego (D-Arizona) told Semafor. “All the investment you did to create these mergers are going to be for naught. Your investors are going to be pissed at you, and you’re likely going to end up getting fired as the CEO because you wasted so much money and corrupted yourself in the process.”
They’re echoing Democratic grandee Susan Rice, who said last week that corporations “got another thing coming” if they think Democrats will “play by the old rules.”
Whatever offenses they think Trump has committed against the rule of law, it will not be restored by behaving this way.
While D.C. considers CNN to be the big prize of the WBD deal, it is a small (and declining) part of the merger’s value. The Ellison family and their investors are not spending more than $100 billion, when debt is factored in, to gain influence over the channel’s aging 660,000 primetime viewers. A combined CBS-CNN would be anything but a monopoly, and people would continue to consume information from countless other places.
The hyperventilating is especially silly because it fails to consider the possibility that Netflix withdrew because the math stopped working. The Ellisons will pay Netflix a $2.8 billion breakup fee to walk away, and its shareholders are ecstatic. Netflix stock surged 14 percent Friday.
Democrats should take comfort that Ellison’s victory may well prove illusory. WBD lost $252 million last quarter, and almost half the company’s annual revenue — and two-thirds of its adjusted earnings before interest, taxes, depreciation and amortization — came from the declining cable networks. WBD is carrying $29 billion in debt, and the acquisition will add tens of billions to that load, raising its leverage ratio to risky levels. It will take billions in “synergies” (read: cost cutting) to keep the firm financially viable.
The Ellisons might be victims of the “winner’s curse.” Bidding wars tend to be won by the buyer who is most optimistic about the value of their prize — frequently, irrationally so.
And irrational exuberance has been the rule, rather than the exception, in past mergers involving Warner Bros. The AOL/Time-Warner tie-up ended with the company breaking apart again, after all the promised synergies failed to materialize. AT&T’s 2018 acquisition of Warner Media lasted barely three years before the company unloaded it — at a loss — on Discovery Networks.
As for that merger, there’s a reason that shareholders are delighted to hand the company over to David Ellison for $31 a share. In September, before the bidding war started, its stock was trading around $12.50 a share, barely half of what it sold for when the Warner-Discovery merger closed in 2022.
Even if they suspect chicanery, Democrats shouldn’t stoop to plotting punishments they’ll unleash on their ideological opponents. Owning these cursed assets may well prove punishment enough.
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