Once again, Warner Bros. Discovery selected Netflix as its preferred contender over Paramount.
On Wednesday, the WBD board informed shareholders that Paramount’s revised offer from last month remained less appealing than the existing agreement with Netflix—despite Paramount claiming it had resolved many of Warner Bros.’ primary concerns.
The WBD board deemed Paramount’s hostile takeover bid “insufficient” and overly perilous.
In a letter to shareholders, the board likened Paramount’s proposal to a leveraged buyout—a financial process that mainly utilizes borrowed funds to acquire a corporation.
Paramount is substantially smaller than WBD, so “to execute the transaction, the company intends to place an extremely large additional debt—over $50 billion—via agreements with several financial partners,” the WBD letter stated.
This structure “presents substantially greater risk to WBD and its owners,” including the possibility of the entire acquisition plan collapsing, compared to the “certainty of a merger with Netflix,” the letter noted.
Paramount attempted to alleviate funding worries by pointing out that one of the world’s wealthiest individuals, Oracle billionaire Larry Ellison, is backing the majority of the proposed takeover. His son David Ellison, Paramount’s CEO, instigated a pursuit for WBD last year by submitting an unsolicited bid for assets including CNN.
WBD, led by CEO David Zaslav, conducted an auction and accepted Netflix’s offer of \$27.75 per share for Warner Bros. and HBO, with \$23.25 in cash and the remainder in Netflix stock.
Paramount offered \$30 per share and went public after the WBD board declined its initial bid. But the board continues to insist that Paramount’s proposal is inferior.
Aside from concerns about debt financing and burdensome conditions associated with the offer, WBD cited the potential worth of its cable assets, which Netflix is not acquiring.
WBD’s cable channels, including CNN, will be spun off into a new public entity named Discovery Global later this year. The Warner board argued that Discovery Global will possess considerable value on its own, whereas Paramount values it at a mere \$1 per share.
When Paramount first made its hostile takeover bid, WBD labeled the proposal “illusory” and questioned the funding, which largely stems from the royal families of Saudi Arabia, Qatar, and Abu Dhabi.
In response, Paramount stated on December 22 that Larry Ellison would personally guarantee the \$40.4 billion he is committing to the \$78 billion deal’s financing. The Ellisons also vowed to grant WBD stockholders a look into the finances of the family trust, and Paramount increased the WBD breakup fee to \$5.8 billion, matching Netflix’s promised payout.
However, Paramount did not raise its bid above \$30 in this amended proposal.
Paramount now faces a decision: it can withdraw, increase its bid, or request a WBD shareholder vote.
The hostile nature of Paramount’s offer means WBD stock owners could override the board’s recommendation if the company decides to present the matter directly to shareholders.
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