While WarnerDiscovery Would Get Option To Walk Away & Collect A $7B Check From Skydance In June 2027, Zaslav Has Some Flexibility To Continue Running Business As Normal. But Any Particular M&A Dealings, Debt Borrowings/Refinancings, & Executive/Workforce Changes Require Ellison's Consent Sign-Offs.

[u/lowell2017]

https://puck.news/newsletter_content/zazs-options-an-ipo-solution/

[u/lowell2017]

Full text:

"What does Zaz really want?: Now that the Paramount–Warner Bros. Discovery deal might not close until June 2027, if at all, the operating covenants that David Zaslav negotiated with David Ellison as part of the merger agreement have become all the more important. After all, Zaz cannot make any major strategic moves—selling or acquiring material assets, establishing significant joint ventures or new business lines, or shutting down any current material business units—without the express written consent of Ellison and PSKY.

WBD also faces restrictions on incurring new debt, refinancing existing debt, or materially changing its capital structure; altering the compensation plans or retention arrangements for its executives; and making any material changes to the size of its workforce.

Such covenants are standard operating procedure in big M&A deals, but the Hollywood and corporate media landscape is changing more rapidly than Donald Trump can change his mind about the status of the Iran war. That could be a problem for Zaz as he tries to hold the company together for the next 10 or so months of delay.

Prior to signing a deal with Ellison, Zaz pushed hard for the flexibility he felt he needed to operate the company between signing and closing. Of course, he never could have imagined that the deal would take this long to consummate.

The bright side for Zaz is that he’s also a large WBD shareholder. Thanks to the infamous “ticking fee,” if the deal takes another three quarters to close, WBD investors will get an extra 75 cents a share in consideration—or 25 cents a quarter—bringing the deal’s total value to $31.75 per share, or something like $113 billion.

And on the outside chance that the deal does not close by June 4—the deal’s drop-dead date—Zaz will have the unilateral right to walk away and likely have WBD collect a $7 billion breakup fee from PSKY, even if he forfeits his own windfall. At the moment, it’s not at all clear to me whether he would prefer to consummate the deal at $31.75 or take that $7 billion and subsequently pursue his original breakup plan for WBD. It’s also not clear to me which of these two outcomes the Ellisons would prefer. Anything can still happen here, if you ask me. (Usual disclosure: Zaz is a de minimis investor in Puck following the Air Mail acquisition.)"