By Spencer Jakab

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Grab the popcorn: Takeover battles like the one swirling around Warner Bros. Discovery can be a lot of fun-especially if you happen to own some of the target company.

Warner's share price is up by 82% in the past three months, and investors seem confident that higher bids are coming. That should make for some white-knuckle moments in the boardrooms of suitors Paramount and Netflix, and also for the lenders being asked to pony up much of the cash.

It's hard to say who'll win, but it might ultimately be the bidder left empty-handed. Overpaying-and wrecking your financial returns in the process-is often the only way to prevail in a bid battle. That means those who know when to hold 'em and when to fold 'em sometimes have the last laugh.

Exhibit A is the most famous takeover battle of all time, immortalized in the 1989 bestseller "Barbarians at the Gate" by Wall Street Journal reporters Bryan Burrough and John Helyar. What started as a $75-per-share management buyout of RJR Nabisco ended at $109 with private-equity firm KKR's winning offer for the food-and-tobacco company.

RJR's public shareholders doubled their money. The leveraged buyout got loaded with so much debt, though, that KKR regretted it.

A more recent example involves Warren Buffett's Berkshire Hathaway. Oil and gas supermajor Chevron made an offer for Anadarko Petroleum in spring 2019. That was topped by much smaller Occidental Petroleum, which was backed by Berkshire. Both companies saw potential in Anadarko's massive position in the Permian Basin near their own acreage.

While Berkshire got some juicy preferred stock in the deal, and recently bought a chemical division from the combined company to give it the needed cash, Occidental shares are down by 25% since its initial offer, including dividends. Chevron, which received $1 billion from Anadarko (and indirectly from Occidental) for walking away, has had a total return of 62%. One analyst called it "winning by not overpaying."

Netflix might boost or modify its offer, or it could let Paramount "win" and walk away with a $2.8 billion break fee, making Paramount's hostile counteroffer even costlier.

Some assets are just unique-arguably the case for an entertainment company like Warner. That was also the rationale during the 2021 bidding war for buying railroad Kansas City Southern.

Two Canadian railroads sparred over the U.S. company, which gave them valuable track rights and a way to connect the entire North American market, including Mexico. Pressured by a major shareholder wary of the risks, Canadian National eventually gave up, collecting a large check for its trouble.

It took Canadian Pacific nearly two years to jump through the regulatory hoops to close the deal. Including dividends, the enlarged railroads' shares have been dead money since the episode.

Some deals surely are a win-win, creating more wealth for all shareholders, but the price has to be right. The only way to guarantee a healthy payday during a takeover battle is to be one of the corporate lawyers hired to work on it.

This item is part of a Wall Street Journal live coverage event. The full stream can be found by searching P/WSJL (WSJ Live Coverage).

(END) Dow Jones Newswires

December 11, 2025 07:34 ET (12:34 GMT)

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