Unleashing Gulf capital will push Warner to new growth

Paramount's bid for Warner Brothers Discovery has sent the media and international investment community into a frenzy.

It’s not simply the size of the hostile takeover attempt at $108 billion for Warner, or WBD, that has caused excitement. It’s also the fact that three Gulf sovereign wealth funds have come together on the same mega-play. Abu Dhabi’s L’imad Holding Company, the Qatar Investment Authority and Saudi Arabia’s Public Investment Fund are jointly throwing their considerable weight behind the Paramount strike.

Netflix rivals

They are contributing $24 billion to the offer led by David Ellison as he tries to railroad Netflix’s agreed rival approach for the Hollywood movie studio and owner of CNN, HBO and other media platforms. What is arousing interest is that they were prepared to move quickly and set aside any differences they may have had.

David Ellison, chief executive of Paramount Skydance, has heavyweight support lining up behind his pursuit of Warner Brothers Discovery. Reuters

Significantly, too, they were willing to forego company governance demands. Normally, any investor putting in a stake of this size would seek commensurate voting rights and/or board seats. Together, the three are supplying almost 60 per cent of the $41bn equity portion of Paramount’s offer, which would give them a majority say in the running of the business. That is not happening here, partly because it would slow down Ellison’s attack. Demands of that sort from the three state-controlled funds would cause protracted regulatory delays. So determined were the three to avoid hurdles being placed in their way over a foreign government role that they were happy to go without.

Partly though it’s because an opportunity like WBD does not come along very often. It’s a prize asset that guarantees instant access to the major league of global media ownership. For that, those strictures and reservations were abandoned.

The funds are determinedly pursuing policies of diversifying away from a historic, concentration on oil and energy. They want to take their holdings and economies into new, digitally-focused sectors. Media, sport, entertainment and tourism are key targets. Within that context, WBD is a glittering diamond.

Paramount Studios in Los Angeles, California. Bloomberg

Financially overall, WBD has not been performing well recently – its third quarter revenue was down 6 per cent year-on-year to $9 billion. The company reported a net loss of $148 million versus a $135 million profit for the same quarter last year.

But the creative WBD Studios division powers ahead. It enjoyed a record year, with revenue jumping 24 per cent to $3.3 billion, thanks to blockbuster releases. Streaming also produced bumper numbers – with worldwide subscribers climbing 16 per cent to 128 million.

That's what is proving so attractive – the chance to be on the inside of a company that is a true media and entertainment colossus, with a vast archive of famous name movies, amon