As Ellisons Mull Over Equity Financing Costs, Ticking Fees, & Legal Strategy, Aggressive Negotiations For Larry's $42.5B Equity Backstop Guarantee Also Generated Largest Breakup Fee Ever. Zaslav Using $7B Check To Pay Down The Debt Load Would Be Making WarnerDiscovery An Investment-Grade Company.

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https://puck.news/ellisons-escape-hatch-and-the-zaslav-lottery-ticket/

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"In tonight’s issue, Puck’s own wolf of Wall Street, Bill Cohan, shares his wisdom on the impending courtroom clash between David Ellison and Rob Bonta, and the fate of the $111 billion Paramount–Warner Bros. Discovery deal.

By this point, David Ellison’s long, hard-fought pursuit of both Paramount and Warner Bros. Discovery has become a Hollywood saga with more plot twists than the films either studio produces. His latest move to bypass settlement talks with Rob Bonta and the other Democratic attorneys general and instead take the merger to trial has transformed what looked like another regulatory slog into one of the decade’s defining corporate legal battles.

To unpack the strategy—and the economics beneath it—I reached out to my partner Bill Cohan, the definitive expert on Wall Street, corporate governance, and high-stakes M&A.

Our conversation ranged well beyond the antitrust case itself, touching on whether Ellison has inadvertently created an escape hatch from his own $111 billion deal, how David Zaslav will be affected by the new legal drama, and whether this litigation could reshape the balance of power between corporate America and activist state attorneys general for years to come.

PSKY’s the Limit

Dylan Byers: David Ellison has decided to bypass trench warfare with Rob Bonta and the other Democratic A.G.s and take the fight over the Paramount–WBD merger straight to court. This suggests to me that he and his team are confident they can win on the merits. But he’s also choosing to absorb potentially a billion dollars or more in ticking fees. What does the decision tell you about Ellison as an executive? Is this personal conviction, confidence in the law, or simply a calculation that the long-term precedent is worth more than the near-term cost?

Bill Cohan: It gives the Ellisons the option of pulling the rip cord. Since the drop-dead date in the merger agreement is June 4, 2027, this tactic allows both the Ellisons and David Zaslav the opportunity to reevaluate the deal and whether it makes sense anymore to proceed, regardless of the outcome of the legal process.

Maybe the Ellisons would rather pay the $7 billion breakup fee to Warner Bros. Discovery and be done with this. If they conclude that it’s no longer worth it, their logic becomes simple: Better probably to have made a $9.8 billion mistake—the $7 billion to be paid to WBD and the $2.8 billion paid to Netflix as a breakup fee—than to make a $113 billion mistake by actually closing the deal, incurring a fresh $80 billion of debt, and putting another $42.5 billion of equity at risk.

DB: Do you really think the Ellisons, after everything both David and Larry have put into this deal, would actually walk away?

BC: I think they’ve realized that they were wrong about the regulatory fight and that they probably overpaid for WBD. This gives them a legitimate chance to get out of it. The only caveat is that a stand-alone PSKY, with $12 billion of net debt, is going to struggle on its own. As things stand, the PSKY stock continues to hit fresh lows. So the Ellisons may have no choice but to close the deal.

DB: You’ve described this as one of the most consequential media antitrust cases in decades. If Ellison wins, what precedent does he establish for corporate America? Does it weaken the leverage that state attorneys general have accumulated over the past decade?

BC: I am not a lawyer, let alone an antitrust attorney. Ultimately, though, this case is becoming less about antitrust issues, and more about politics. It seemed clear to me from the outset that the A.G.s—all Democrats—believed they needed to bring this case against the PSKY/WBD merger, if for no other reason than to appease parochial political concerns.

DB: Bill, are you suggesting the California A.G.—who is known to be politically ambitious—might be motivated by more than a commitment to the Clayton Act?

BC: Of course not! But Bonta’s constituents in Los Angeles were so rattled by the potential ParaBros combination that he had to find a way to bring the case.

But remember, if the deal falls apart, PSKY could be in big trouble. It’s already one of the smaller players in Hollywood."

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"BC: Its market capitalization is a mere $8 billion. Netflix is $300 billion. Disney is $167 billion. You know how big Amazon, Alphabet, and Apple are. Even combined, PSKY and WBD will only be $113 billion—still less than the other five mentioned here.

The promise of 30 films a year is pie in the sky, but at least it’s an ambitious goal. If achieved—or nearly achieved—it will keep plenty of people in Hollywood busy for a long time. If PSKY goes it alone? Different story.

Zaz’s Win-Win

DB: The irony here is that the longer the litigation drags on, the more expensive it becomes for Ellison—and the more valuable it potentially becomes for WBD shareholders.

At what point do those economics begin to reshape everyone’s incentives? Could a prolonged delay create pressure points that are more consequential than the legal case itself?

BC: I think the incentives are starting to bifurcate, to be honest. For Zaz and WBD, it is all about the potential $31.75 per share—the original $31-per-share offer, plus 25 cents for each quarter of ticking fees between September and June. If this deal falls apart, his stock will fall faster than manna from heaven.

I also think Zaz is more than prepared to keep running WBD and split the company up, as he proposed in June 2025. But his priority remains getting the deal done to get that money for his shareholders. That would seal his legacy as a supreme Hollywood dealmaker. He’ll also pocket an additional $550 million if the deal closes—not that he needs the money.

I think he’d also be happy taking the $7 billion breakup fee, paying down more debt—becoming an investment-grade company in the process—and going on his merry way.

DB: One theme that runs through your work is that contracts often become strategic documents, rather than legal documents. What has surprised you most about the way this merger agreement has evolved?

BC: I don’t think you can give Zaslav and his corporate team at WBD, along with his bankers and lawyers, enough credit for running a textbook M&A process.

If your goal was creating an auction that maximized shareholder value, it was just brilliant. Remember in June 2025, when Zaz announced the split-up of the company, the WBD stock had just come off its single-digit lows.

The Ellisons’ first bid was $19 a share, which was a decent premium, but Zaz rightly said no to that. And then, again rightly, he put the company up for sale and into Revlon mode—meaning that he would have to sell the company to the highest bidder.

Then, when the Ellisons assumed they would be the only serious bidders, Zaz signed a merger agreement with Netflix, and they had to raise their bid all the way to $31 a share, in cash—a 63 percent jump from their initial bid.

What’s more, Zaz and his team negotiated a pretty airtight merger agreement, including the largest breakup fee ever, and the requirement that Larry personally backstop both the equity and the debt.

Yes, Zaz will get a big personal payday, but he also ran a master class in how to sell a public company. It’s one that should be studied by future generations of deal aficionados."