Brent Ballard:

Hi, I'm Brent Ballard, Managing Director in the Mergers & Acquisitions team here at J.P. Morgan. Today we're here to talk about the Warner Bros. Discovery sale to Paramount Skydance. And joining me for that is Fred Turpin. He's the Global Chairman of Investment Banking, and has really led the coverage for Warner Bros. Discovery over the past many years. So Fred, thanks for joining us. Maybe just to start, people are familiar with the drama of this situation over the past 12 weeks or so, but what people may not realize is that this has been going on for much longer than that. Can you talk about where did this really first start for you?

Fred Turpin:

Yeah, it's interesting because everybody focuses on the fact that this was the highest profile corporate takeover battle in history. And everybody likes a horse race, and who's going to win and how much are they going to pay, but we started working on this two and a half years ago when the company's stock price was in the mid-single digits. And as you know, our team worked tirelessly for six months trying to figure out a way to create a separation of the studio streaming and content business that would work under the company's $36 billion balance sheet. And we finally actually landed on a solution, and we did the most successful liability management transaction of all time. And J.P. Morgan made a $17 billion bridge to affect the separation. And we thought that was an amazing win for the company. The stock price traded up, and they were going to be able to do this clean separation. But then, you know, September came around and we got an unsolicited proposal from Paramount and then a series of unsolicited proposals. And, you know, the decision was made, actually on our recommendation, that we could reverse the steps on the spinoff. And instead of spinning off the studio streaming and content business, allowed the company to go explore, more broadly, all of its strategic alternatives as opposed to just a sale of the whole company to Paramount. You know, which obviously resulted in Netflix coming to the table and actually being the winner in the original announced deal to sell just the studio streaming and content business to Netflix and to continue to separate Discovery Global to the shareholders.

Brent Ballard:

Despite the fact that we'd set up the structure that allowed many different types of buyers to credibly participate in the process, we still got a bunch of different bids with completely different structures that were not so easy to compare. So talk us through: How did we get the board comfortable with being able to put those options side by side and ultimately make the right decision?

Fred Turpin:

As you suggested, the three serious proposals that we received at the end of the first phase of the process were very different deals. You know, one was effectively a cash purchase of the whole company, one was effectively a cash purchase of just the studio and streaming business, and one was effectively a merger of equals on the studio and streaming business, with a lot of synergies and potential for public market upside. And so, it wasn't like you could compare, you know, $22 a share to $23 a share to $24 a share. There was real judgment involved, and there were also timing considerations. Some of these deals could be executed right away. Some of them might have taken another three or four weeks. And when push came to shove, we organized this entire process from beginning to end in seven weeks, which is really breathtaking. And when the board had to decide, the best buyer, the best offer, and the most compelling contract was the offer from Netflix. Obviously, Paramount, who was not the winning bidder in that phase of the process, and who we did not sign a contract with, refused to go away. And that kind of led to phase three.

Brent Ballard:

I think we were all a little surprised at how much certainty the Paramount team was able to deliver in their final proposal, which we ultimately accepted. And that certainty came in some pretty unprecedented ways. What were some of the ways that they were ultimately able to get the Warner Bros. board comfortable with the fact that they would get this deal done with a degree of certainty?

Fred Turpin:

Well, the Warner Bros. board had the fiduciary right to determine that another proposal had the potential to represent a superior proposal. They didn't have to actually find it to be superior, they just had to find that it had the potential to be, which we had been reluctant to do because we really weren't sure that it would. But when it became clearer that maybe this did have the potential, we went to Netflix and said, you know, maybe, what do you guys want to do? And they said, well, we want you to schedule a shareholder vote on our deal, because they wanted to have time pressure on their side, because they thought their deal was the most compelling, and they didn't think the Paramount team would be successful in the end, because they had not been successful in taking the feedback so many different times. I think their view was: We're not going to change our bid, we want to set a date, and we set a March 20th date for a shareholder vote on their deal, in accordance to their wishes. And in exchange for that, they gave us a seven-day waiver, so that we were allowed under our contract to go and formally vet the Paramount proposal and determine whether in fact it could be considered a superior proposal. And then, before midnight on Saturday night, with the expiration of the seven days being midnight on Monday night, we received markups of every document from them and their lawyers. And they were surprisingly accommodating this time. Then, we negotiated right up until the midnight deadline on Monday night. We did not finish, but we were substantially in a place where the board subsequently concluded that this absolutely had the potential to be a superior proposal. And some of the key items that were part of that deal that allowed the board to change its recommendation. $7 billion breakup fee, the largest breakup fee ever paid, or ever would have been paid. So if the deal did not close for whatever reason, they owed us $7 billion. They agreed to have no material adverse change condition on the entire Discovery Global business, which is almost half of our business, because we wouldn't have had that risk in the Netflix deal. And we weren't going to take it in their deal, particularly with moral leverage. They accommodated our requirements for conduct of business representations, and they agreed to pay Netflix the $2.8 billion that they were entitled to when we changed our recommendation, because they had signed a deal with us, and if we were going to change our recommendation, that was the cost. And then maybe most importantly, the Ellison family agreed to provide an equity cure for any reason if anybody else didn't show up with their money at closing, the banks, the other investors, the Ellison family agreed to make the shareholders of Warner Bros. whole for that and close. It was an impressive demonstration of commitment and it was received that way by our board.

END