Warner Bros Discovery: Fight club
It was the great Samuel Johnson who described a second marriage as “a triumph of hope over experience”, and the sentiment applies to those who have hopped eagerly into bed with the Brothers Warner over the years.
Nuptials such as the $165bn AOL Time Warner merger in 2000 and the $80bn takeover by AT&T in 2018 barely made it out of the honeymoon period before the punches started flying, and are generally agreed to be some of the most disastrous, value-destructive deals of all time.
Despite a marital history as chequered as that of Zsa Zsa Gabor, the suitors are once again lining up to stick on the sponge-bag trousers and drag Warner to the altar.
First up was the streaming giant Netflix, which agreed an $82.7bn cash and stock deal to buy Warner Bros Discovery’s (WBD’s) studios and streaming assets, then Paramount CEO David Ellison piled in with a $108bn hostile bid for the whole shooting match, and the stage is set for an almighty dust-up with shareholders, regulators and almost certainly The Donald himself.
All this drama is excellent news for WBD’s shareholders, with Paramount’s offer of $30 per share valuing the company at around three times where its share price has been languishing this year.
Much of the firepower behind Paramount’s bid comes from Saudi Arabia, Abu Dhabi and Qatar, but it is backed up by Larry Ellison’s family trusts, and it looks likely that it may sweeten the deal even further to get it done. This could lead to Netflix walking away, with the consolation of a $2.8bn termination fee for its efforts.
Oracle: Dad’s wooden spoon
While the prodigal has been larging it around in Hollywood like some latter-day Randolph Hearst, it’s been a tough week for old man Larry Ellison back at the mothership.
Oracle’s share price went through the roof in September when it announced its gigantic data centre contracts with OpenAI, but investors have since woken up with a mighty hangover about the amount Oracle will have to borrow to meet its commitments. There are also questions about how OpenAI is going to finance the $1.4-trillion it has contracted to spend over the next eight years.
Oracle reported disappointing revenue for the quarter to end-November and the market duly hammered the share price, which has now given back all the gains it made in September and more.
The spread on Oracle’s credit default swaps is at a record high, as some analysts estimate that the company’s net debt could reach a distinctly nerve-racking $290bn by 2028.
While its rivals have the revenue from their vast cloud computing divisions to fall back on, Oracle is a relative latecomer to the cloud and generated revenues of a mere $4.1bn in the quarter.
Worryingly for the long term, Oracle has bet the farm on OpenAI, and the perception in the market is that despite its considerable first-mover advantage, the ChatGPT maker is losing ground to Google.
With investors twitchy about signs that the AI boom is turning to bust, Oracle appears to be in the weakest financial position of the hyperscalers. But, as he showed when he won yachting’s America’s Cup in 2013, Larry is not averse to pulling rabbits out of hats.
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