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Shareholder Primacy
Musk securities fraud; Warner Brothers Discovery update
00:36:40
Musk securities fraud; Warner Brothers Discovery update
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- [00:03]
A
Welcome to Shareholder Primacy from Free Float Media, a podcast about activist investing, securities law, and all the ways the legal and financial and legal and financial worlds intersect and collide in real life. Ann and I are back. After a couple weeks. I had to attend to a new company whose board I sit on an ad who attend. Had to literally attend some conferences. I think that's right, Ann. Is that where you were? You were traveling? Anyway, so Ann and I are back. Ann is a law professor at the University of Colorado who teaches and researches securities and business law. She holds up the legal end of the podcast.
- [00:36]
B
And that's Mike Levin, an activist investor who lives and works in Chicago. He covers the financial side of our podcast.
- [00:41]
A
Yes, let's talk about a couple things today. Do you think? Yes, there's. We have two things. The first is a new old matter. It's old because it's our old friend Elon Musk.
- [00:56]
B
Whatever. There's nothing else to talk about.
- [01:00]
A
Yes, there's always. There's always. If you always run out of stuff to tell your students, you can always go back to Elon Musk and the Casebook. But there's. And it's actually Elon in Twitter. But it's a new securities law matter.
- [01:11]
B
It's a securities fraud case. Yes. Twitter is not dead. It is still being litigated as it is.
- [01:16]
A
Right, Exactly. And then we also thought, even though we only talked about it three or so weeks ago, there have been some really cool and juicy developments in Warner Brothers discovery, both from a little bit from a legal and then really from the activist and the market dynamic perspective. So we thought we'd update everybody about WBD and NFLX and Peace Guy. So, yeah, so let's talk about those things. Right.
- [01:40]
B
Yeah. With a quick plug. Once again, you can email us at shareholder PrimeCyreeFloat LLC.
- [01:46]
A
Email us about what, Ann?
- [01:48]
B
Anything you would like to ask us or like us to talk about. We work our way through these notes immediately. But when we can. So, yeah, yeah.
- [01:56]
A
So any questions, comments, whatever. All right, so let's talk for a little while about good old Elon and Twitter, the deal that closed in 2022, but has spawned all sorts of fun lawsuits. Right?
- [02:07]
B
Yes, exactly. So to set the stage. Yeah. So there were. Yeah. So there were these federal securities fraud lawsuits that were filed against Musk regarding his conduct in connection with his acquisition of Twitter. One of those is pending in New York. And we actually talked about it a long time ago. I checked. It was in April 2020 25. We did a show about this pending securities fraud lawsuit against Elon Musk, basically talking about the fact that he didn't disclose his Twitter stake on time and alleging that this defrauded Twitter shareholders. That case is still pending in New York. It's ongoing. But there is a second one pending in California, and at least as of right now, we're recording Sunday. It is scheduled to go to trial in March. There's actually a trial date.
- [02:54]
A
Oh, there's a trial that's set in federal court.
- [02:55]
B
It's a trial date set in federal. And unless this settles, which seems highly unlikely, or something happens to otherwise end the case, we're gonna get a trial. So.
- [03:05]
A
All right, so. So what. What's the allegation?
- [03:08]
B
So, yeah, so the. We all remember Elon Musk signed this merger agreement with Twitter for $54.20 per share. And almost immediately he.
- [03:17]
A
420. I remember that, yes.
- [03:19]
B
5420 lives on in memory. Almost immediately, he started trying to back out. And his legal excuse for trying to get out of the deal, which of course failed, was his claim that lied about the number of spam accounts on the platform. And we all remember this. Musk kept tweeting about how Twitter's management had misled him about the spam counts. He couldn't close the deal unless the spam count issue was resolved.
- [03:42]
A
This is bringing back fond memories.
- [03:44]
B
Fond memories. Right. This was my life for, like, six months. He purported to cancel the deal, claiming that Twitter was refusing to provide him with info.
- [03:52]
A
And at the time, it was pretty clear to. If you're trying to read between the lines, that that spam accounts thing was a pretense.
- [03:59]
B
Exactly. Which is ultimately the punchline of all this. So. But that was what he was saying. He was saying that the spam counts were all a lie, and therefore he didn't have to close the deal. And Twitter won this fight in the sense that Musk finally gave up his opposition and agreed to go through with it. Now, normally, as you, I am sure, quite aware, if a company is a target in a merger and its stock price reflects something like the merger price and the expectation that the deal will close. So if you think Twitter's going to get bought out at 5420, then the stock should be somewhere near 5420.
- [04:32]
A
Or adjusted for the likelihood of.
- [04:34]
B
Right, exactly. Like a little bit.
- [04:36]
A
And adjusted for the likelihood of. Well, it's just a cousin of closing, but of funding and so forth. Because the Twitter deal was. Was. Was contingent on. On getting some equity partners and some debt and so forth. So There was. So there was all sorts of questions about whether it would close. So that's why it didn't immediately start trading at 5420.
- [04:56]
B
Well, that. Yeah, well, yeah, but, but. Right, but normally. Right, so like a little bit off to reflect the risk of deal closing, but somewhere near 5420.
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A
Sure.
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B
But in this case, it wasn't just, you know, there were some funding questions, but most of those were resolved. What? Because Musk was fighting so hard to escape the deal and making these acquisitions about Twitter's user base, the stock price was actually unusually low. No one was sure this deal would close, largely because of Musk's legal fight. Morgan Ricks, he's a professor at Vanderbilt, he tweeted that the gap between. He did, because this whole thing was playing out on Twitter, that the gap between the ultimate deal price, which was 54:20, and the market price, was actually the second largest of all time. Meaning everyone was tweeting. Yeah, everyone was tweeting Twitter stock like they thought Musk was right and that the deal wasn't going to happen. But if you bet that the deal would go through and you bought in at the market, market price, then you would clean up.
- [05:51]
A
Oh, you did well. Yeah, you did very well.
- [05:54]
B
And there were some law professors who did so, and they're not named. And Lipton, unfortunately, but there were some who did because I only buy index funds. Anyway, this is what the securities case is about. Pampena versus Musk. I don't know if I'm pronouncing that correctly. Pending in California federal court, the plaintiffs claim that Musk made these wild and false accusations about Twitter's spam counts to drive the stock price down and forced the company to abandon the merger or renegotiate. And in the meantime, Twitter investors who traded during this period, they were induced to sell their stock too cheaply because they believed Musk's accusations. Which gets the whole. Was a pretext that they were defrauded because Musk basically manipulated the market.
- [06:34]
A
So the class, I'm guessing this is either. This is a securities class action. Yeah, securities class action. So the class is people who sold Twitter.
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B
Yes.
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A
And did not benefit from the closing price of 5,000, 420.
- [06:46]
B
Exactly. Of all these people who sold because Musk had manipulated the price downward. And I should say that we all know that this went on for months and Musk finally dropped his opposition in October. But the case actually resolves around statements Musk made in May when he first tried to back out of the deal. Which was almost immediately after signing. This part's actually a little vague right now. Some of us later conduct may come in, but mostly for now, the case is focused on these statements he made in May. Basically, deals on hold, spam counts might be much higher. I won't close unless I get
- [07:19]
A
all these actionable disclosures being put on X or Twitter. It wasn't even X at the point.
- [07:25]
B
There was no X at the time. It was just Twitter. Yes, exactly.
- [07:28]
A
All right, go ahead.
- [07:29]
B
Well, yeah, so obviously, the plaintiffs are gonna have to show that Musk made these false statements, and they're focusing on his accusations that Twitter spam counts were inaccurate, which were completely baseless. And also on Musk's suggestion that he had put the deal hold and that he had a right to put the deal on hold until he received accurate information. So they'll have to show that all of these statements were false, that Twitter spam counts, that he had put the deal on hold, that he had right to put the deal on hold. And they'll also have to show that Musk acted intentionally or recklessly. Either he knew he was lying about Twitter, or he didn't care whether he was lying about Twitter.
- [08:04]
A
Oh, interesting. And that's intent and reckless.
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B
Yeah. And then finally, they'll have to show that this worked, that all of this mishigos kept Twitter stock price artificially low. If Musk hadn't lied, if Twitter shareholders knew that, knew the truth, then the stock price would have been higher and anyway.
- [08:21]
A
And they wouldn't have sold more money. Right.
- [08:23]
B
Or they wouldn't. Either. They wouldn't have sold or they would. Or at the very least, they would have sold at a price much closer to the actual deal price.
- [08:29]
A
All right, so. So that's. That's the nature of the claims.
- [08:35]
B
Right.
- [08:35]
A
Is. Is there any. So that's what the plaintiffs basically have to prove. Yes, that Musk kind of lied about all this.
- [08:45]
B
He lied about it. He did it intentionally, and it had a market.
- [08:47]
A
So there's three or four kind of steps here that these plaintiffs are gonna have to kind of march through. Yes, exactly. To prevail here. And it sounds like you're gonna march through most of it, at least. You're guessing. There's not much chance of settling this, it appears.
- [09:01]
B
Well, Musk doesn't settle, so, I mean, I don't think he's likely to settle. I think he rolls the dice on these things.
- [09:06]
A
All right, so what's. All right, go ahead. You had another comment I was gonna ask you. What's the Likelihood of success here. But if there's something else I miss.
- [09:14]
B
Yeah, no, no, no. I mean, that's the thing. I mean, I can't really game out exactly who's gonna win. But obviously Musk is arguing that he didn't lie about anything. This was his opinion. And the plaintiffs can't prove his opinion was false. They can't prove he intended to defraud anyone, stuff like that.
- [09:31]
A
But consistent opinion doesn't really matter in these kinds.
- [09:35]
B
It does. It does, actually. It does, because opinions, um. It's harder to prove an opinion was false.
- [09:39]
A
Oh, right. But in terms of, like, securities disclosures.
- [09:43]
B
No, it doesn't matter, right? No, it doesn't matter. In terms of, like, an opinion can have a market effect, but they have to prove it was false. And there's sort of a high bar for proving opinion was false. But then you have to establish that it's an opinion to say what Twitter spam counts are. And I'm not quite sure.
- [09:55]
A
Right, yeah, that's. That does. That's what I was getting at is
- [09:57]
B
that this is currently at an opinion,
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A
factually kind of stuff. Yeah, okay. Right, okay.
- [10:01]
B
Yeah.
- [10:02]
A
But.
- [10:02]
B
But. But there's a bigger issue, which is what you were hinting at before, which is, obviously, we know the market price of Twitter was depressed. People doubted the merger would close. It was debated constantly. I know hedge funds that were actually paying law professors to, like, opine on the legal arguments. Really? Twitter. And once again, they are not named
- [10:23]
A
should we sell or what you raise.
- [10:24]
B
Yeah, that was exactly it. No, seriously. So people doubted the merger would close. Twitter stock price reflected that, Reflected that. If people really thought Musk would buy the company at 5420, the price would have been higher. And at the time, as the dispute wore on, and I remember this, a lot of the commentary was people expected the case would settle, Musk would pay a break fee, and that would be that. A lot of people, most people doubted
- [10:47]
A
the deal would actually be not the case. He would just pay the break fee to Twitter, walk away.
- [10:52]
B
Yeah, exactly. That was what most people. So that was true. Unquestionably. The stock price was low and nobody thought this deal would close. They thought it would end, so this whole dispute would just end with them walking away. So the real question is, why did they think that? Why did they think the deal wouldn't close? Did they really believe Musk when he said Twitter was lying about its spam counts? Did they really believe that Musk had a contractual right to more information and that Twitter was refusing to Provide that
- [11:20]
A
information, wasn't meeting this information request. Okay.
- [11:23]
B
Cuz that's the sticking point. Cuz that's the lie. That's the purported lie here that fooled the market. That people believed Musk when he said the spam counts were high and that he had a right to more information and a right to put the deal on hold. And if he got it, did people really believe that? And that's the sticking point. I mean, there's a good argument, as you say. Everyone understood that Musk was just looking for excuses.
- [11:45]
A
Right? I mean, it was, it seemed that Musk figured out he was in up to his armpits in a deal that he did not want to be in.
- [11:57]
B
Yes.
- [11:57]
A
Okay. And it seemed to. And again, I, you know, the only Musk stuff I own, as everyone here knows, is Tesla.
- [12:05]
B
Yeah, the Tesla.
- [12:05]
A
It's not like I was a Twitter shareholder. I regret that now because I could have made some money. But it seemed that Musk had ordered his attorneys. He didn't care about spam. He did not give a shit. He, it seemed like he asked his attorneys for. Find me some loophole. What can I go after here to try to get out of this deal? How can I muddy this up enough? So that's kind of what it looked like to someone who's neither, who's not a law professor or a Twitter investor.
- [12:38]
B
That is definitely what it looked like. Matt Levine. Musk, actually, we all know Matt Levine. We all love Matt Levine.
- [12:44]
A
Musk, actually, he was talking about this a lot.
- [12:47]
B
He talked about this every day. Musk actually quoted one of Matt Levine's columns in some of his briefing in the case. Yes. And Matt Levine, I remember this quote because I loved it, referred to Musk's and I'm quoting, transparent and smirking. Bad faith.
- [13:01]
A
Yes, right, okay. Exactly.
- [13:03]
B
So there's, so this is the issue. There's a real question whether anyone actually believed Musk was making a good faith statement about Twitter spam, in which case he fooled the market, or did they believe he was just getting cold feet and throwing stuff at the wall like. So the merger agreement plaintiffs argue that Musk lied about whether he had rights to more information and whether he had rights to terminate the deal. But the merger agreement, it was public. Everyone could see it.
- [13:29]
A
Oh yeah, right, yeah, we were all
- [13:31]
B
reading it, we were all quoting it, we were tweeting bits of it so everyone could see what Musk did or didn't have a right to do. Which means the issue here is what was the market reacting to? The market definitely Doubted the deal would close. But why did it believe that? Did it believe that Twitter lied about its spam and that Musk had a legal basis to terminate? Or did the market just believe that Musk was putting up a fight and had enough resources to put closing in doubt? And that's. And at the time that was. I wrote a paper on this.
- [13:57]
A
You may have. I know. I remember that. Yeah, Right.
- [13:59]
B
Whether Musk could get out of the deal despite not having a legal leg to stand on. So.
- [14:05]
A
And get out of the deal without
- [14:06]
B
paying a break fee or even with a break fee, but like, a billion is a lot less than what he actually did.
- [14:11]
A
Oh, right. Yes. Right. Okay. Yeah.
- [14:13]
B
Now, the funny thing, and this is like the punchline to all this, is, I gotta say, Musk's attorneys, they absolutely bollocks this up.
- [14:21]
A
How so?
- [14:21]
B
There's really no other way to put it. This is just hilarious. So this argument that whatever Musk said about closing, whatever he said about the merger agreement, whatever he said about the spam counts. The argument is, or should be, it didn't affect the market because the market knew the truth. Everybody understood Musk was just trying to get out of the deal. And everyone understood what the merger agreement entitled them to do because the merger agreement was public, and you could read it and you could quote it. That is the argument they should have made when moving to dismiss the case. If they had made that, a lot of courts might have.
- [14:56]
A
Oh, had they argued? Had they argued? Yeah, it was a pretense.
- [14:59]
B
Yeah. But they didn't argue that in their briefing. They didn't. In their written legal arguments to the court, they never said anything about this. Then on their motion to dismiss, they had an oral argument on motion to dismiss. And for the first time, they said, oh, by the way, everyone could read the merger agreement. Everyone knew what Musk did or didn't have, have right to do. But they, in a very minimal way, like, they didn't really put any oomph into it because they didn't put in their written arguments. They just kind of spoke it at oral argument.
- [15:24]
A
Oral argument. They kind of added. Added it at the end, added in.
- [15:27]
B
So then Judge Breyer, Charles Breyer, Stephen Breyer's brother, he's the presiding judge, he rejected the argument. He refused the motion to dismiss. Then Musk's attorneys realized, wait a minute, we should have been arguing all along, seriously. Arguing that all this, the merger agreement was public. Everyone understood what was going on. And that's when they moved again to get rid of the case. And they quoted Matt Levine and they said, look, everybody knew the truth. And at that point, Judge Breyer said, well, you already made that argument and I already rejected it. So it was like they made the argument so last minute and so half assed that it was just enough to not persuade the court and bar them from making it again.
- [16:06]
A
Okay, interesting. And importantly, that argument should have been. This was a pretense. We, everyone knew it was a pretense.
- [16:13]
B
Everybody. Or yeah, they could put it more delicate. You know, everyone could. Nobody could have been fooled about what he had a right to in the merger because the merger agreement was public and everyone could see it.
- [16:22]
A
It was all invented in English.
- [16:24]
B
Right, Right, exactly. Now, I assume that part of that is going to be part of the trial, but it's not. In their trial briefing, we'll see, you know, ultimately how the whole thing unfolds.
- [16:32]
A
Wow. All right. And that's March.
- [16:34]
B
That's theoretically. That's what it says.
- [16:37]
A
Okay. So we may have to come back and sort of see what happens at argument or probably more likely after. And this is Federal District Court. This is the first.
- [16:44]
B
Yeah, California. Yeah.
- [16:46]
A
Yes.
- [16:46]
B
And don't forget, we've still got that other case we talked about in April 2025. That's as far as I know, still in litigation.
- [16:52]
A
And that's about the 13D disclosures.
- [16:53]
B
That's about the 13D disclosures. So we make a two trial.
- [16:56]
A
So there's more on Twitter and Elon Musk, Twitter, litigation. That illustrates some interesting truths and principles about corporate law. Anyway, cool. All right, let's take a little break. We got more stuff to talk about. We got Warner Brothers Discover coming along. Why don't we hit that up in a minute here at Shareholder Prim.
- [17:19]
B
Shareholder Primacy is brought to you by free flow analytics.com the only free database of corporate directors, their influence and their performance. If you own a stock or retirement plan, go to free flow analytics.com and look up which of your elected directors are performing well and which aren't. Use your vote in the alternative democracy and get your data @free float analytics.com now back to the show. Welcome back to Shareholder Primacy. I'm Ann Lipton here with Mike Levin talking about the latest developments in the Warner Brothers Paramount Netflix situation.
- [17:54]
A
Yes, yes, yes, yes. And we only talked about it like three weeks ago.
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B
Yeah, it was our last.
- [18:01]
A
Was the one before this? I don't remember.
- [18:02]
B
No, it was because. Yeah, because we took a break for a couple weeks.
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A
Oh, it was. Okay. Well, so a few things have happened that are worth that are interesting from both a market and activist and also a little bit of a legal perspective. So we thought we would kind of recap that for some people and, and highlight some of those, some of those developments. The one thing that hasn't changed. Hasn't changed yet is the bid amounts.
- [18:30]
B
Yes.
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A
So just for everybody to remember, this is Warner Brothers Discovery, the movie studio HBO and a bunch of aging cable assets. And they went to go sell themselves and Netflix bid 2775 a share. And Paramount Skydance, which is Larry Ellison's kids media business that now owns Paramount Studio, bid 30 a share. Both are now cash bids. For a while, the Netflix bid was stock in cash. Now both are completely cash bids. So if you, whatever happens, you're going to get cash for your shares. Importantly, big difference is Netflix is buying only the movie studio and hbo and they're going to leave those aging cable businesses with the current Warner Brothers Discover shareholders. But peace Guy, Paramount Skydance is going to pay that $30 a share for the whole thing. Yeah, so they're going to. And we, and we had this whole debate. Go ahead and.
- [19:33]
B
Yeah, no, so just saying. So the, like, you know, the side by side comparison, leaving aside things like regulatory barriers and closing risks and all that side by side comparison, everything depends on how much you think those actual cable assets are worth.
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A
Exactly.
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B
Yeah.
- [19:47]
A
They're worth nothing. Which is how you can interpret the Paramount Skydance bid or what they say or what they. Or and how much debt it's going to have. That's also important in a little while anyway. So, so what has not. And we're going to return to this point in a little while. What has not happened is neither side has changed their offer right. About how much they're going to pay Warner Brothers Discovery shareholders for their, for their shares. After a lot of toing and froing, a couple things happened really on the Paramount Skydance side. There's been a lot of affirmations and a lot of invective launched at each other about how bad the, and whatever and so forth. But substantively, the main things that change is that, is that Peace Guy keeps on kind of up in their offer in some not as material ways as changing their $30 a share. First thing they said is they would fund any breakup fees that Warner Brothers Discover has to pay to Netflix, and that's currently at $2.8 billion. So if Netflix, if Warner Brothers goes back and says, okay, we're going to renounce this signed merger deal that we have with Netflix and we own Netflix. $2.8 million.
- [21:06]
B
Billion.
- [21:07]
A
A billion. Oh, thanks.
- [21:08]
B
Billion. Right.
- [21:10]
A
Thank you. Then Netflix has said they'll pay it, which, you know, it's not. That's a, that's a decent amount of money. But at that point, that also means that, that Paramount Skydance is probably going to get the deal. So adding 2.8 billion to their cost is not that, that it doesn't know.
- [21:26]
B
It doesn't add anything to the cost. Because if they close the deal. Right.
- [21:29]
A
Yes.
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B
Yeah. I mean, that's the thing that like, that only matters if they don't close. If it doesn't close.
- [21:35]
A
Right.
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B
If they do, like, either way, Warner Brothers has to pay $2.8 billion to Netflix. If, if it pays $2.8 billion to Netflix and Paramount takes them over, it gets a Warner Brothers. That is $2.8 billion less cash.
- [21:47]
A
Right.
- [21:47]
B
Or Paramount can just pay the 2.8 billion, but either way it's the same if the deal closes. It only matters if it doesn't.
- [21:54]
A
If it doesn't close, which we'll get to in a little while.
- [21:56]
B
Yeah.
- [21:57]
A
The other. They also offered, and this is not, I don't think this is that important to backstop any debt offering, presumably for the cable assets. So again, you know, Paramount Skydance probably has enough credit worthiness that they really don't necessarily need a. Any kind of backstop, but they offered to kind of help secure any kind of debt that has to be issued in order to maybe fund the deal. The third thing gets to be interesting, which is something we haven't seen that often, which is this.
- [22:32]
B
Yeah.
- [22:33]
A
Oh, the ticking fee. Yeah. So the ticking fee is. It's. The amount of money is 25 cents a share. It's roughly $650 million cash. And that's an amount that Paramount Skydance will pay to basically increase their deal price and presumably in a fee if the deal never closes for every quarter past December 31, 2026. So starting in the first quarter, first calendar quarter 27, that the deal doesn't close. So if the regulatory approvals take another year, they'll pay a buck a share, 4/4 times 25 cents. If. And that's mostly probably going to be the source of WB regulatory approval.
- [23:14]
B
Right. It would be regulatory approval.
- [23:16]
A
So there hasn't been, we haven't seen, I haven't seen a ton of ticking fee kind of deals.
- [23:21]
B
It was JBlue, JetBlue and Spirit did the same thing.
- [23:25]
A
Oh, they did. Oh, I didn't look at that deal that closely.
- [23:27]
B
Yeah, but yeah, But I mean, that's the reason this is interesting, is because they don't pay it if the deal closes before the end of this year. They only pay it if the deal drags on. If they are. And the reason this is, you know, I'll just say, and we said this in our last show, Warner Brothers big reason for not even talking to Paramount was Warner Brothers was like, but what happens if we break off with Netflix, sign with Paramount, and then it doesn't go through with Paramount, it dies and
- [23:58]
A
we're off the market. And we're off the market for two years. Right?
- [24:01]
B
Yeah, it's the sky falls. So what Paramount's moves are meant to do, including the sky falls, including, they say, because we've just paid a $2.8 billion break fee to Netflix and we'll never see that money again. So Paramount's changes are all geared toward this purported objection of Warner Brothers that they'll be in a terrible position if they sign with Paramount and Paramount doesn't go through with it. So Paramount's. All of this is meant to say, we're not gonna raise our price, but if you're right that there's some real deal risk with us, we will compensate you.
- [24:37]
A
We're trying to mitigate that with money.
- [24:39]
B
Right. But none of it. Nothing. That Paramount's added changes the economics for them. If they're right that the deal will close, it's only like if Warner's right that the deal would risk closing, then Paramount ends up paying more money. But if, if Paramount's right that there really is no risk of the deal closing, which is what its argument is, then none of this actually adds to its right.
- [25:01]
A
And then you're in the same position shareholders are last week before all this came up, which is $30 a share.
- [25:08]
B
Yeah, exactly. But Warner's brothers. Yeah, exactly. But Warner Brothers whole objections all this time have largely been, we don't think Paramount's offer will really actually happen. And Paramount's basically trying to compensate them for that specific risk.
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A
Risk, that concern. Okay.
- [25:22]
B
Yeah.
- [25:23]
A
So that's the current state of the deal, I think, based on what I saw as of noon today.
- [25:33]
B
I have to say again that we're like recording this Sunday and this episode will go up Wednesday and God knows what'll happen.
- [25:38]
A
Yeah, there's. Anything could happen, but there's some interesting developments like in the deal dynamics that I thought were fun to bring up, having to do with activism and so forth, and, and, and what's going to happen with bidders and everything. So the State of the approvals of the deal are as follows, is that Warner Brothers Discover still needs to schedule a special shareholder meeting to gain shareholder approval of the deal. So while that's not certain, it's probably a pretty good chance, though. We'll talk about that in a minute. So they still need to schedule that. And, you know, everyone's kind of waiting for that date to drop. There's been preliminary proxies filed and so forth. So we're kind of waiting for the date to be approved and a record date to be set to be able to vote on the deal. And so we'll, we'll return to that deal in a minute. In addition, you know, Warner Brothers Discoveries usually has a, a shareholder meeting in, you know, sometime in May, June. The nomination window for directors for that shareholder meeting came and went. It was February 2nd. And as far as we know, we haven't seen any public disclosure of opposition directors, particularly from Paramount Skydance.
- [26:59]
B
Are you saying that that implied that there could have been a confidential submission?
- [27:05]
A
Well, that's, that's what's actually interesting is that if some other shareholder nominated directors for this meeting, they would have had to do it by February 2nd. And as long as they weren't a 5% holder, they wouldn't have to because
- [27:23]
B
then they'd have to file 13D. Right.
- [27:26]
A
That could remain confidential. It's interesting. I mean, Paramount Skydance does not own 5%.
- [27:31]
B
Right.
- [27:31]
A
So Paramount Skydance is not obligated to disclose whether or not they nominated directors. I gotta think they would have, yeah. You know, said, you know, just to put other pressure on the company or something like that. But there's a chance that there's a full slate of, of dissident directors from Warner Brothers Discovery that's out there. And I also would expect that if, if Warner Brothers Discovery, if, excuse me, Paramount Skydance had a bunch of directors queued up, it would have been out in the media at this point. Someone would have, it would have been clear.
- [28:07]
B
Yeah, I saw, I had seen reporting on. They were considering something. Something.
- [28:10]
A
But. Right. Yeah, but as far as you know, it hasn't happened yet. All right, so that's. And we also talked last show about the dynamics about how that would work relative to the A deal and shareholder approval of a deal. So anyway, the other interesting thing that's happening is something very unique, as far as I can tell in kind of the activism world is that Paramount Skydance is evidently out there trying to rustle up opposition to the deal. To the Netflix shareholder. Yeah, to the Netflix.
- [28:42]
B
Because that's the thing. They can't. Other than through a proxy contest. They cannot force Warner to accept. No, of course not.
- [28:48]
A
I mean, we talked about that very clearly.
- [28:49]
B
Right, right. So. But what they can do is get shareholders to vote down.
- [28:52]
A
Vote against it.
- [28:53]
B
Exactly.
- [28:53]
A
Vote against the deal at this upcoming meeting date to be D. And there was an article in New York Post about how there's been. And again, we're kind of looking at reporting and I don't think it's actually the most credible reporting, but it's good reporting. It's fine. It's Charlie Gasparino in the Post who. Yeah, whatever. And they evidently were calling a bunch of activists and so forth to try to get him to oppose and so on. Well, one rose to the occasion. Are you familiar with Ancora man? Ankora Funds in Cleveland?
- [29:25]
B
I mean, I've heard the name.
- [29:26]
A
Yeah. So they're, they're, they're, they're a sharp activist. They know what they're doing. They were, we've talked about them once or twice. They were the activists behind the Norfolk Southern proxy contest a year, year ago, and they won a bunch of seats. They're very effective. They're in there. They're very, they're, they're kind of badass. Jim Chadwick runs their activism stuff. He's been doing it for years. He, you know, trained with some of the best they disclose. So, you know, normally you'd sort of try to get some promises from funds to oppose. And what I always try to say, would you be public? And very few people are willing to be public about their opposition to a deal or their support for an activist. You know, they'll just vote, but they won't necessarily create a news release. Well, Ankora wrote a news release. They not only wrote a news release, they disclosed a 200 million dollar investment. That's up from almost nothing as of June 30th. Okay. And up from I think 70. They have about 70 million disclosing their 13F as of September 30th. So they've really bought a lot of Warner Brothers discovery, which is probably a smart move anyway because, you know, the price going up, somebody's gonna buy the company.
- [30:39]
B
Somebody's gonna buy.
- [30:40]
A
Yeah, right. So they, they not only said, we support Paramount Skydowns, we think the deal with Netflix is bad, they wrote like a 51 page PowerPoint document point by point.
- [30:56]
B
No, I actually hadn't seen that. But thank you for telling me because that's gonna be an exhibit in my next M and A class.
- [31:01]
A
Excellent, Great. But it's really interesting because normally activists do this kind of stuff for our nominees or when we're trying to buy a company, when we're opposing a deal and we're a big shareholder. But this is like somebody basically put them up to this. They said, okay, this deal isn't. And they said all the right stuff about this isn't. You know, we haven't been coordinating, was independent and, you know, so they're not forming a group if that becomes a problem. And then they also issued a P. I can't remember the name, but they issued an exempt statement. So they issued a news release in support of Paramount Skydance. So that was exactly the kind of thing that. That Paramount Skydance was kind of looking for. Now, you know, Encore is not BlackRock. It's not some sort of huge holder. It's not like somebody who's, you know, going to be really well known to a bunch of retail. There's not a whole lot of retail shareholders in the shareholder base, though they're respected.
- [31:56]
B
There should be employees. I don't know if there are any real numbers.
- [32:00]
A
So that could kind of matter. Another fund I know Sachem had, Scott Ferguson was reportedly had increased their ownership, but they hadn't made any kind of public disclosure. So what's kind of interesting is that normally when you get kind of multiple activists kind of involved, if you can sort of consider Peace Guy an activist here, I suppose usually that's good for the company because it sort of sows confusion and makes people kind of worried.
- [32:31]
B
But here they're all on the same here.
- [32:34]
A
It appears that Paramount Skydance and there could be others are out there trying to, trying to get people to publicly say, look, there's, you know, there's sort of like a third order indirect benefit here. If you have matters before the SEC or you care about your influence of the Trump administration or whatever. You know, we talked about some of the last. We last talked about this in the show. There's some sort of civic affairs or political things going on in the deep background. And so if you're coming out in support of Paramount Skydance, you know, it's, you know, it's not bad to have Larry Ellison as a friend here.
- [33:10]
B
Yeah. So it just from, but from my perspective, all this, like, the politics of it, the fact that Netflix bid could fail regulatory approval for political reasons, not for any kind of legal reasons, Paramounts might succeed because of that. That just messes everything up. I want to believe that Ankora actually believes that this is A financially better deal and not that coloring favor with someone's poll with the administration.
- [33:36]
A
Go read their presentation. It's arguably. I mean, they're arguing that, yeah, this is financially. And they also, and Akara focused a lot on the closing. The regulatory approval argument.
- [33:51]
B
Yeah, but the reason the regulatory approval is up in the air, I mean, part of it actually is antitrust concern,
- [33:57]
A
but a lot of it is political. Absolutely. Right. So I think what's really happening here, and there's some news just this weekend that this is potentially going to happen, is that everyone's waiting for higher bids.
- [34:09]
B
Yeah.
- [34:10]
A
So the state of things right now is that Warner Brothers Discover has a signed merger agreement with Netflix, refuses to interact with Peace Guy, and there's some chance that they may need to start talking to Peace Guy.
- [34:26]
B
Yeah, exactly. Like that's the late. Like the very latest as we record this Sunday afternoon, is that Warner is thinking about reopening talks with Paramount, which you know, may presumably is some relate somewhat related to the activist pressure and somewhat related to the fact that Paramount, you know, sort of said, all right, fine, if you're concerned that our offer won't close, we have amended it.
- [34:48]
A
We have some money. We have some money that will. Will hopefully make you feel a little better.
- [34:52]
B
Well, we'll cause you for that specifically. But now if Warner is reopening talks with them, we might see higher bids from both sides. Right.
- [34:58]
A
So anyway, so that's the state of that. That at this point, again, we talked about how no one has increased their bid. There's a chance that that'll happen, which is also probably why, you know, Warner Brothers Discovery could have set this shareholder vote date anytime they wanted in the past whatever weeks.
- [35:17]
B
No, no, no. Apparently there was a report in the New York Times that the SEC has to sign off on their preliminary process.
- [35:24]
A
Oh. Oh, fine. All right.
- [35:25]
B
And apparently there are political like I think it was Tim Scott, like, basically friends of Larry Ellison in Congress went to the SEC and said, I don't
- [35:33]
A
think you should sign off on this.
- [35:36]
B
So, like all of this is just messing up what would otherwise be just a fun deal to.
- [35:42]
A
A fun deal to discuss. Yeah, Anyway.
- [35:44]
B
Yes.
- [35:44]
A
So, anyway, so we'll have to. Hopefully this won't become like another Musk Twitter thing we were talking about every goddamn week. Yeah, but we'll have to talk about it again sometime soon.
- [35:54]
B
All right, I'm sure. Okay, cool.
- [35:56]
A
All right, let's move on, shall we? Yeah, well, we can wrap up and we'll pick up some more fun stuff. Fun stuff next week. All right.
- [36:03]
B
Yes.
- [36:04]
A
Cool. All right. This is Shareholder Primacy, hosted by Ann Lipton and me, Mike Levin. I'm an independent activist investor and advisor to investors about their activist situations and is professor of law and The Lawrence W. DeMuth Chair of Business Law at the University of Colorado Law School. You can find me, Mike, at theactivistinvestor.com One word. The activistinvestor.com and Ann at Law Colorado. Edu. Our podcast is produced and distributed by Free Float Media. Thanks for listening. We'll talk again soon.