David Ellison’s hunt for WBD made David Zaslav richer — and it may not be over

This isn’t exactly what David Ellison had planned in September.

Just a few months ago, the Paramount Skydance CEO sent a letter to the Warner Bros. Discovery board of directors arguing a combination of the two media and entertainment companies made sense. That letter was the first of several letters, which offered increasingly higher prices to acquire the company along with arguments of why the assets were better together.

Paramount’s interest spurred a formal sale process — bringing Comcast and Netflix into the mix — which ultimately doubled the value of Warner Bros. Discovery shares and culminated, at least for the moment, in Paramount losing out in the bidding war it started.

On Friday, Netflix announced a deal to acquire HBO Max and the famed Warner Bros. film studio for $27.75 per share, or an equity value of of $72 billion. WBD will move forward with a plan to separate out its pay-TV networks, like CNN and TNT Sports, before the deal closes.

Instead of supercharging Paramount, just months after gaining control of the company through a merger with Skydance, Ellison effectively handed a prized jewel of the media and entertainment industry to its most dominant player, strengthening Netflix’s reach and stripping Paramount and Comcast’s NBCUniversal of an obvious merger target.

“It wasn’t for sale before, and they certainly hadn’t cleaned up the assets or separated the assets in the way they have right now,” said Netflix co-CEO Ted Sarandos in a conference call Friday morning after announcing the deal. “I think that kind of goes to the ‘why now.'”

Ellison jumpstarted a process that has made a lot of money for Warner Bros. Discovery CEO David Zaslav, WBD’s executive team and its shareholders.

Zaslav currently owns more than 4.2 million shares of Warner Bros. Discovery, with another 6.2 million shares that would be delivered to him in the future via previously granted stock awards, according to Equilar. Zaslav also has a grant of almost 20.9 million options with an exercise price of $10.16, Equilar found.

Based on the Netflix-WBD transaction price of $27.75 per share, all of that adds up to more than $554 million for the WBD CEO.

Factoring in another 4 million shares that Zaslav is set to receive in January, according to a person close to the situation who declined to be named speaking about the executive’s holdings, the true total is closer to $660 million.

For shareholders, the sale process has brought a similar windfall. Warner Bros. Discovery stock closed at $12.54 on Sept. 10, the day before The Wall Street Journal reported Paramount was preparing a bid for the company.

On Friday morning, Warner Bros. Discovery shares were up almost 3% to more than $25 apiece. That’s more than double Warner Bros. Discovery’s unaffected sale process price and a return to 2022 levels when WarnerMedia and Discovery first merged.

That’s vindication for Zaslav, who has spent nearly four years coming under fire from Hollywood and investors for failing to deliver for shareholders. With Friday’s announcement, he’s effectively pulled victory from the jaws of defeat.

And still, Paramount is likely not done with its pursuit of buying all of Warner Bros. Discovery.

Ellison has wasted no time at the helm of Paramount Skydance, transforming the company through deals and acquisitions.

Since the merger closed in August, Paramount has brought on C-suite executives and high-profile Hollywood talent like the Duffer Brothers. It secured the rights to develop a live-action feature film based on Activision’s Call of Duty video game franchise and struck a $7.7 billion deal for UFC rights.

Ellison’s hunt for Warner Bros. Discovery was his biggest endeavor yet since taking control of the company.

Paramount’s lawyers sent a letter to Warner Bros. Discovery this week, first reported by CNBC, claiming the sale process had been rigged in Netflix’s direction. Paramount has accused Warner Bros. Discovery of failing to properly consider its offer of $30, all-cash, and instead selling to Netflix as a predetermined outcome.

Netflix made an initial bid for WBD’s studio and streaming assets of $27 a share, according to a person familiar with the matter. That trumped Paramount’s offer at the time and turned the trajectory of the sales talks in Netflix’s direction, said the person, who asked not to be named because the discussions were private.

Paramount was the only bidder interested in acquiring all of WBD’s assets — the film studio, streaming service and TV networks. It’s maintained its offer is superior.

Paramount’s executives and advisors valued the Discovery Global networks portfolio at close to $2 a share, based on its predicted trading multiple and estimated leverage ratio, according to people familiar to matter, who asked not to be named because the discussions were private.

Warner Bros. Discovery believes Discovery Global could have a value of $3 per share or more if it trades well in the public markets, according to other people with direct knowledge of the matter.

Paramount has also argued there are tax efficiencies for shareholders in acquiring the whole company rather than buying only a portion of it, and that Netflix’s bid comes with steeper regulatory risk. The Trump administration’s view of the proposed combination is one of “heavy skepticism,” CNBC reported Friday.

Paramount offered a break-up fee of $5 billion if the proposed deal didn’t get regulatory approval, according to the people familiar.

Netflix’s bid included a $5.8 billion break-up fee in case the deal doesn’t get regulatory approval, according to a Securities and Exchange Commission filing Friday.

Paramount is now weighing its options about whether to go straight to shareholders with one more improved bid — perhaps even higher than the $30-per-share, all-cash offer it submitted to WBD this week.

If it does, Netflix would have a chance to match that bid. The end result would mean even more money for WBD shareholders — and more money for Zaslav.

— CNBC’s Nick Wells contributed to this report.

Disclosure: Comcast is the parent company of NBCUniversal, which owns CNBC. Versant would become the new parent company of CNBC upon Comcast’s planned spinoff of Versant.