Warner Bros again rejects latest hostile bid from Paramount

The board of Warner Bros Discovery (WBD) has unanimously turned down Paramount Skydance’s latest attempt to acquire the studio, saying its revised $108.4bn hostile bid amounted to a risky leveraged buyout that investors should reject.

In a letter to shareholders on Wednesday, the WBD board said Paramount’s offer hinges on “an extraordinary amount of debt financing” that heightens the risk of closing. It reaffirmed its commitment to streaming giant Netflix’s $82.7bn deal for the film and television studio and other assets.

Paramount deal ‘remains inadequate’

The revised Paramount offer “remains inadequate particularly given the insufficient value it would provide, the lack of certainty in Paramount Skydance ability to complete the offer, and the risks and costs borne by WBD shareholders should Paramount Skydance fail to complete the offer”, the Warner Bros board wrote.

Paramount, which has a market value of about $14bn, proposed to use $40bn in equity, which would be personally guaranteed by Oracle’s billionaire co-founder Larry Ellison, whose son David is Paramount’s CEO, and $54bn in debt to finance the deal.

Its financing plan would further weaken its credit rating, which S&P Global already rates at junk levels, and strain its cash flow – heightening the risk that the deal will not close, the Warner Bros board said. Netflix, which has offered $27.75 a share in cash and stock, has a $400bn market value and investment-grade credit rating.

The decision keeps Warner Bros on track to pursue the deal with Netflix, even after Paramount amended its bid on December 22 to address the earlier concerns about the lack of a personal guarantee from Ellison, who is Paramount’s controlling shareholder.

Paramount and Netflix have been vying to win control of Warner Bros, and with it, its prized film and television studios and its extensive content library. Its lucrative entertainment franchises include Harry Potter, Game of Thrones, Friends, and the DC Comics universe; as well as coveted classic films such as Casablanca and Citizen Kane.

Netflix applauds

Netflix co-CEOs Ted Sarandos and Greg Peters welcomed Warner Bros’ decision on Wednesday, saying it recognises the streaming giant’s deal “as the superior proposal that will deliver the greatest value to its stockholders, as well as consumers, creators and the broader entertainment industry”.

Warner Bros Chairman Samuel Di Piazza told CNBC that the company was not currently in talks with Paramount but remains open to a transaction with the Ellison-led firm, and both the deals have a path to regulatory approval.

“From our perspective, they’ve got to put something on the table that is compelling,” he said, referring to the Paramount offer.

Wednesday’s filing said Warner Bros’ board met on December 23 to review Paramount’s amended offer and noted some improvements, including Ellison’s personal guarantee and a higher reverse termination fee of $5.8bn, but found “significant costs” associated with Paramount’s bid compared with a Netflix deal.

Warner Bros would be obligated to pay the streaming service a $2.8bn termination fee for abandoning its merger agreement with Netflix, $1.5bn in fees to its lenders and about $350m in additional financing costs. Altogether, Warner Bros said it would incur about $4.7bn in additional costs to terminate its deal with Netflix, or $1.79 per share.

The board repeated some concerns it had laid out on December 17, such as that Paramount would impose operating restrictions on the studio that would harm its business and competitive position, including barring the planned spin-out of the company’s cable television networks into a separate public company, Discovery Global.

Paramount offered “insufficient compensation” for the damage done to the studio’s business, if the Paramount deal failed to close, Warner Bros said.

Paramount “repeatedly failed to submit the best proposal” to Warner Bros shareholders, the board wrote, “despite clear direction” on the deficiencies in its bid and potential solutions.

The jockeying for Warner Bros has become Hollywood’s most closely watched takeover battle, as studios race to scale up amid intensifying competition from streaming platforms and volatile theatrical revenues.

While Netflix’s offer has a lower headline value, analysts have said it presents a clearer financing structure and fewer execution risks than Paramount’s bid for the entire company, including its cable TV business.

“WBD does not want to sell to Paramount, so it will keep rejecting Paramount as long as it is able to,” said Ross Benes, an analyst at eMarketer.

“But this process is not over … Paramount will have opportunity to make further attempts.”

Harris Oakmark, Warner Bros’ fifth-largest investor, previously told Reuters that Paramount’s revised offer was not “sufficient”, noting it was not enough to cover the breakup fee.

Paramount has argued its bid would face fewer regulatory obstacles, but a combined Paramount-Warner Bros entity would create a formidable competitor to industry leader Disney and merge two major television operators and two streaming services.

The valuation of Warner Bros’ planned Discovery Global spin-off, which includes cable television networks CNN, TNT Sports and the Discovery+ streaming service, is seen as a major sticking point. Analysts peg the cable channels’ value at up to $4 per share, while Paramount has suggested just $1.

Lawmakers from both parties have raised concerns about further consolidation in the media industry, and US President Donald Trump has said he plans to weigh in on the landmark acquisition.

Source: Aljazeera

Warner Bros again rejects latest hostile bid from Paramount