Zaslav Payday, EU Merger Rules & Texas’s Corporate Appeal – Due Diligence

The megadeal reshaping Hollywood has delivered a massive payout for Warner Bros Discovery (WBD) chief executive David Zaslav, even as questions linger about the long-term success of such large-scale mergers. Paramount Global’s unexpected $111 billion bid for WBD, which scuttled a prior $83 billion agreement with Netflix, has triggered a windfall for Zaslav, potentially reaching $633 million in vested stock and unvested share awards, alongside substantial tax reimbursements. The deal also saw Netflix walk away with a $2.8 billion termination fee.

Zaslav’s potential payout underscores a recurring pattern in the media industry: departing executives often reap significant rewards even when shareholder returns are lackluster. This particular instance is drawing scrutiny given Zaslav’s previous compensation controversies and WBD’s recent performance. In 2022, proxy advisory firm Institutional Shareholder Services (ISS) criticized a $247 million pay package for Zaslav while he was CEO of Discovery, arguing it was “disproportionate to company performance” and urged investors to vote against it. As the Financial Times reported at the time, the criticism centered on a lack of correlation between Zaslav’s compensation and the company’s shareholder returns.

Shareholder discontent was further demonstrated last summer when WBD shareholders rejected a $52 million pay package for Zaslav in a non-binding vote. This occurred while WBD shares had fallen nearly 60% since the merger with WarnerMedia in April 2022. Despite these concerns, Zaslav is now poised to benefit enormously from the Paramount deal, having also sold $113 million worth of WBD shares this month.

The Auction and Zaslav’s Role

While Zaslav’s personal gain is substantial, observers credit him with skillfully managing the auction process that ultimately led to Paramount’s winning bid. Paramount’s offer of $31 per share represents a significant premium over WBD’s trading price of $10 per share a year ago. However, WBD’s overall stock performance since its formation in April 2022 has been modest, returning only 13% compared to the S&P 500’s 58% total return over the same period. It has outperformed some peers like Disney (down 22%) and Comcast (down 23%), but lagged behind Netflix (up 165%) and Fox Corporation (up 57%).

The success of the auction doesn’t erase concerns about the broader trend of media consolidation. US media megamergers haven’t consistently delivered value for shareholders, despite often providing lucrative exits for executives. The example of AT&T’s acquisition of Time Warner serves as a cautionary tale. Jeff Bewkes, then-CEO of Time Warner, received a golden parachute worth as much as $117 million when the deal closed in 2018, according to Bloomberg. However, the merger ultimately was largely unwound a few years later, resulting in significant losses for shareholders.

Paramount’s Risk and Ellison’s Backing

The focus now shifts to Paramount and its chief executive, David Ellison. Ellison has taken on considerable risk, backed by his father, billionaire Larry Ellison, to finance the acquisition. The success of the deal will hinge on Ellison’s ability to avoid the pitfalls that have plagued previous media megamergers. The deal’s financing structure and potential for integration challenges represent significant hurdles.

Corporate America’s Shift to Texas

Beyond the Hollywood drama, a broader trend is unfolding in the corporate landscape: a move away from Delaware as the state of incorporation. Texas is emerging as a popular alternative, particularly for companies concerned about the Delaware Chancery Court’s willingness to challenge founder-led companies. Tesla and Coinbase have recently moved their incorporations to Texas, citing a more business-friendly legal environment. Texas has established a “Texas Business Court” and modified its laws to be more favorable to CEOs and boards. The Financial Times details this shift, noting that companies are drawn to Texas’s perceived “cultural ascendancy” and exercise of “soft power.”

Private Credit Concerns and Recent Collapses

In the realm of private credit, recent collapses of UK mortgage providers are raising red flags. Blue Owl Capital played a role in the administration of Century Capital Partners after discovering financial discrepancies. This follows the earlier insolvency of Market Financial Solutions, which threatened losses for creditors like Apollo’s Atlas SP unit. These events, along with alleged frauds at First Brands and Tricolor, have prompted warnings from JPMorgan Chase’s Jamie Dimon about “cockroaches” lurking in credit markets. The FT reports that Blue Owl discovered the issues at Century Capital after the firm dismissed a director over financial irregularities.

Job Moves

• Simpson Thacher has hired Christine Bae and Jacob Ruby as capital structure solutions partners in Los Angeles and Houston, respectively, both from Kirkland & Ellis.
• Weil, Gotshal has named Ramona Nee as executive partner, effective January 2027, succeeding Barry Wolf.
• Fortress Investment Group has hired Elizabeth Burton as chief strategist, formerly a managing director at Goldman Sachs Asset Management.
• BHP has named Brandon Craig as its new chief executive, replacing Mike Henry.
• Matthew Swindells, a senior NHS official, is stepping down after it was revealed he was being paid to advise Palantir while urging colleagues to add more patient data to the company’s platform.

Looking Ahead

The Paramount-WBD deal remains subject to regulatory approval and shareholder votes. The outcome will have significant implications for the future of the media landscape. The deal’s success will depend on Paramount’s ability to integrate WBD’s assets, navigate potential antitrust concerns, and realize the anticipated synergies. The coming months will be crucial in determining whether this megamerger delivers value for shareholders or follows the pattern of previous, less successful attempts at consolidation.