The Week in Breakingviews: Paramount’s ascent

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OPENING LINE

“Last April, corporate America was blindsided by President Donald Trump’s unprecedented tariff barrage. Now, the fight over trade policy has moved onto their natural terrain: the courtroom.”

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Read more: Corporate America will harry trade warriors.

FIVE THINGS I LEARNED FROM BREAKINGVIEWS THIS WEEK

1. Enterprise software group Visma is likely to delay its mooted 26-billion-euro IPO until at least April 2027.

2. Only 10% of leading pharma groups’ 2024 drug revenue will still be under patent protection in a decade.

3. The share of U.S. takeovers offering a mix of cash and stock is at its highest in a decade.

4. Tycoon Li Ka-shing’s two holding companies trade at just 40% of book value.

5. A cryptocurrency lender has issued asset-backed securities supported by bitcoin loans.

ELLISON’S LESSONS

It’s a storyline that could have been lifted straight from a Hollywood script. A fresh-faced film buff and former actor, opens new tab sets out to build an entertainment empire. He launches an audacious bid for an ailing media giant only to be outmaneuvered by a rival. Yet with grit and determination – and some help from his billionaire tech mogul father – the youthful hero prevails. The keys to the kingdom are in his hand.

The true story of David Ellison’s victory in the battle over Warner Bros Discovery (WBD.O), opens new tab is a bit messier. Nevertheless, his rise is astonishing. Paramount Skydance (PSKY.O), opens new tab, the company he created from a merger which was only finalised last August, had a market value of just $12.5 billion and borrowings of around $10 billion as of Thursday. It is now the strong favourite to buy Warner for $111 billion, inclusive of the HBO owner’s existing debt, after Netflix (NFLX.O), opens new tab boss Ted Sarandos declined to increase his offer. The saga is not over. Even so, it’s possible to draw some conclusions from the David-versus-Ted battle that has played out over the past three months.

The first lesson is that cash is king. Indeed, that was the explicit message Warner’s investment banker delivered, opens new tab to Ellison’s adviser in December, prompting Paramount to launch its $30-a-share offer. Warner initially favoured Netflix’s cash-and-stock proposal worth $27.75, which the streaming giant later converted to cash. But Paramount’s simpler pitch eventually prevailed, helped by a last-minute dollar-per-share sweetener.

The second insight, though, is that leverage has limits. Warner boss David Zaslav borrowed heavily to buy the studio from telecom giant AT&T. Ellison similarly financed roughly half his offer with debt. But commitments, opens new tab from Bank of America, Citi and Apollo were not enough to sway Warner, which insisted that Paramount agree to put up extra equity if it’s necessary to satisfy creditors. This effectively means David’s father, Oracle (ORCL.N), opens new tab Chairman Larry Ellison, is using his fortune to backstop the entire offer.

The third takeaway is that U.S. competition rules are now a political black box. Netflix’s clout in the entertainment business meant it was always likely to face scrutiny, while Paramount’s plan to combine two Hollywood studios and two major news networks also merits inspection. Even so, it’s impossible to tell where or whether antitrust regulations will be applied. Paramount cleared an early regulatory hurdle, while the Department of Justice is probing whether Netflix has too much power over filmmakers, Bloomberg reported, opens new tab. President Donald Trump declared early on that he would be involved in the decision, and more recently called for Netflix to fire board member Susan Rice. Paramount has already overhauled the leadership of CBS News to make it less critical of the administration. The risk must be that Warner’s CNN becomes another bargaining chip in exchange for official approval.

The final conclusion, though, is that financial gravity still applies. Paramount is paying four times what Warner’s shares were worth last April. Yet its target’s revenue shrivelled, opens new tab by 6% last year. This is the fourth takeover of the storied studio’s owner in a quarter of a century. The previous three ended in financial disappointment. Ellison junior may feel like he has achieved a Hollywood finale. But as Jonathan Guilford argues, the more clear-headed conclusion is that everybody has lost.

CHART OF THE WEEK

What is the effective tariff rate on Chinese exports to the United States? For years the answer to this question remained the same. In the first year of Donald Trump’s second term, though, it resembles a volatile stock price. After the Supreme Court rejected the U.S. president’s use of emergency powers to impose duties on goods, the rate fell again, though perhaps not for long. Even so, Hudson Lockett argues that the setback weakens Trump’s hand in his upcoming talks with China.

THE WEEK IN PODCASTS

Tariffs were also the subject of heated debate on the Viewsroom, opens new tab this week. Gabriel Rubin and I joined Aimee Donnellan and Jonathan Guilford to discuss the consequences of the Supreme Court decision, how the Trump administration will try to rebuild the tariff wall, and what trade partners like the European Union and China will do now. Another key question: what happens to the $175 billion the administration has collected so far?

Over on The Big View, opens new tab, Una Galani debated the prospects for Japan’s new government with Jesper Koll, global ambassador for Monex Group Japan and a long-term analyst of the country’s economy and markets. Overseas investors are fretting about Prime Minister Sanae Takaichi’s spending plans and their effects on inflation and bond yields. Jesper has a very different perspective.

PARTING SHOT

Amid the debate about the impact of artificial intelligence on jobs and on energy demand, Big Tech’s effect on water consumption is often overlooked. Yet it’s a big potential headache. Hygiene and water treatment specialist Ecolab reckons AI-driven growth could gulp down as much H2O as Americans currently drink by 2030. Little wonder that chip companies, engineering firms and tech giants are trying hard to make AI less thirsty. Whether they are succeeding is a harder question to answer. Antony Currie holds their claims up to the light.

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Editing by George Hay; Production by Oliver Taslic

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Reuters Breakingviews is the world’s leading source of agenda-setting financial insight. As the Reuters brand for financial commentary, we dissect the big business and economic stories as they break around the world every day. A global team of about 30 correspondents in New York, London, Hong Kong and other major cities provides expert analysis in real time.

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Peter Thal Larsen

Thomson Reuters

Peter is Global Editor of Reuters Breakingviews, based in London. He was previously EMEA editor, and before that spent four years in Hong Kong as Asia Editor, where he oversaw the launch of Breakingviews’ Asian edition. Prior to joining Reuters in 2009, Peter spent 10 years at the Financial Times, including five years as the paper’s banking editor, leading its award-winning coverage of the credit crunch. Between 2000 and 2004 Peter reported for the FT from New York, where he covered a range of stories including the 9/11 attacks and their aftermath. A Dutch national, Peter has degrees from Bristol University and the London School of Economics.

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