The Warner Offer

The next morning, Ethan Hawthorne's name filled front pages and television crawls around the world.

FACEBOOK CLOSES ITS FIRST DAY AT $153.3 BILLION.

MGM CHIEF TARGETS WARNER BROS.

THE WORLD'S RICHEST MAN? ANALYSTS DISAGREE ON THE NUMBER.

The question mark did little to slow anyone down. Reporters traced Facebook's rise from a campus network to a company valued alongside giants it had once hoped to imitate. Some calculated Ethan's holdings; others simply printed a larger number. He had announced a bid for Warner Bros. before the market had even settled on a price for his own shares.

Online, the offer became a debate about revenge. Warner and Disney had helped organize the campaign against MGM. Why buy Warner instead of Disney? One commenter argued that Time Warner, burdened by debt, might consider an offer that Disney would never entertain. Another pointed out that the board, not the executives who ran the studio, would make the final decision. Others cared less about the transaction than about the library. Would Tom and Jerry, Gone with the Wind, and Ben-Hur end up under the MGM lion again?

The argument wandered into hand-drawn animation, the cost of television production, and whether anyone could make a new Tom and Jerry worth watching. Ethan let it wander. The attention helped his offer without committing him to another dollar.

For nearly two weeks, Time Warner gave no clear answer. Richard Parsons finally invited him to New York. Ethan brought Judy and his advisers to the company's headquarters, where Parsons met them outside the conference room.

"Ethan. It has been a while."

"Since that charity event in Salt Lake City, I think. How have you been?"

"Busy. How's your father?"

"Enjoying retirement more than I expected. He and my mother keep finding places to travel."

"That sounds like a good life."

"You have another thirty years before you get one," Ethan said.

Parsons laughed and led them inside. The small talk ended when everyone took a seat.

"You made your intentions public," Parsons said. "Tell us what you want to buy."

"Warner Bros. as an operating studio, with its library and distribution business. My opening price is forty billion dollars."

The room went still. Parsons glanced toward the executives on either side of him.

"That's a serious figure," Ethan continued. "It should tell you I intend to close, not spend six months generating headlines."

"It's serious," Parsons said, "but it isn't enough."

Warner Bros. had no separate public share price for either side to point at. Their bankers had marked the business at a little over thirty billion dollars based on its earnings and assets. Ethan's offer already carried a substantial premium. Parsons argued that the opening bid had changed what a buyer might be willing to pay, making yesterday's appraisal a poor ceiling for tomorrow's deal.

A woman across the table, who introduced herself as Dana, leaned forward. "Our latest working number is thirty and a half billion. Once the market knows you're serious, that number won't stand still."

Judy gave a short laugh. "It moves because someone offered forty billion, not because a new film library appeared overnight. That's a negotiating position, Dana, not a change in the underlying business."

Dana started to answer, but Judy went on. "Walk away from the offer and your bankers will have to defend their old model again. We didn't come here pretending there should be no premium. We came with one."

Parsons studied her. "And you are?"

"Judy Newhouse."

"My partner in business and in life," Ethan added. "If we complete the deal, I want her running the studio."

One of Parsons's executives raised an eyebrow. "You're choosing management before the board has agreed to sell?"

"I'm showing you I have a plan for the company after closing. That's different from claiming I own it today."

Parsons rested a hand on the folder before him. "Then here's the board's position. Fifty-one billion dollars, in cash at closing."

Ethan looked at Judy. The number was high enough to make his forty seem like an invitation rather than an offer.

"If that's the floor," he said, "we're done for today."

He rose. Parsons did not stop him immediately. He had expected a counter, not a walkout.

At the door, Ethan turned to Judy. "Pull the bid. Then look at MGM's release calendar. We have films we've been holding back."

"Another slate war?" Parsons asked.

"You helped start the last one. I learned a few things."

"Both sides lost money."

"And I have more films ready now. I can target Warner openings instead of throwing everything into the same weekend. I'd rather spend on a studio than spend to hurt one, Richard. That choice is yours too."

Parsons watched him for a moment, then pushed out a chair. "Sit down."

Ethan returned to the table. He wanted the leverage, but he wanted the studio more.

"Fifty-one isn't impossible," he said. "It depends on what is included and how quickly we can get to a lawful closing. The financing and cash at closing are my responsibility. I won't ask your board to pretend a public announcement is a signed agreement."

"What do you need from us?"

"A transaction team that can move. Clear books. And no campaign from Warner management to sabotage the process while the board considers it. Barry Meyer can object through the proper channels. He can't obstruct diligence on behalf of the seller."

Parsons did not promise that Barry would be pleased. He did promise the board would control its own sale process.

"There's one more asset," Ethan said. "New Line. I want it in the package, not stranded between companies after Warner leaves."

"That wasn't in your forty-billion-dollar offer."

"It is in a fifty-one-billion-dollar one. New Line has its own slate and management, but it shares distribution and relationships with Warner. Breaking those apart would cost both of us."

Parsons leaned back. He had expected Ethan to ask for something extra. He had not expected him to trade a cleaner separation for it.

"New Line adds value," he said.

"So does what I'm leaving with you. DC Comics keeps its publishing business and ownership of characters created after the deal. For its existing characters, MGM would seek defined screen, television, animation, and merchandise rights. Counsel will have to draft the carve-out, and regulators will still review it. But I'm not asking you to give up every future page DC prints."

Judy watched Parsons consider the trade. Warner plus New Line. Publishing retained. Media rights to a defined roster. Fifty-one billion in cash if the lawyers could make the structure work.

"That's no longer the offer you made in the street," Parsons said.

"It never could be," Ethan replied. "This is where we decide whether either of us wants a real deal."