Update: On Thursday Paramount released a statement reaffirming its offer for WBD and the view that it presents superior value and a more certain, quicker path to completion than the Netflix deal.
A personal guarantee by Oracle founder Larry Ellison ahead of the holidays to backstop equity financing has not persuaded Warner Bros. Discovery’s board in favor of Paramount’s hostile all-cash $30 per share takeover bid for the entire media company.
On Wednesday the WBD board of directors once again recommended shareholders reject an offer from Paramount, unanimously determining that despite recent amendments, “Paramount’s latest offer remains inferior to our merger agreement with Netflix across multiple key areas.”
The board reiterated support for Netflix’s cash-and-stock offer with an enterprise value of $82.7 billion for WBD’s studio and streaming businesses, which was announced as the winning bid December 5.
After the WBD board last month already recommended shareholders reject Paramount’s bid, the hostile suitor on December 22 revised its offer, valued at $108.4 billion, to address what it said were WBD’s earlier issues. That amended offer included commitments from Paramount CEO David Ellison’s father Larry including not to revoke the Ellison family trust or transfer assets while the transaction is pending and Larry Ellison’s personal guarantee to backstop $40.4 billion of the equity financing offer, among others.
But WBD’s board still sees issues, telling shareholders in a letter that the offer wouldn’t provide sufficient value and warned of uncertainty around Paramount’s ability to complete the deal and risks to WBD shareholders if the transaction didn't close.
“Paramount’s offer continues to provide insufficient value, including terms such as an extraordinary amount of debt financing that create risks to close and lack of protections for our shareholders if a transaction is not completed,” said Samuel Di Piazza, Jr., Chair of WBD’s Board of Directors, in a statement. “Our binding agreement with Netflix will offer superior value at greater levels of certainty, without the significant risks and costs Paramount’s offer would impose on our shareholders.”
WBD’s letter also cited costs to shareholders if they accept the Paramount Skydance offer – the latest of which upped the amount of a breakup fee paid by Paramount to WBD if the transaction doesn’t close to $5.8 billion. However, WBD told shareholders that if they bail on the Netflix agreement in favor of Paramount, WBD would have to pay Netflix a $2.8 billion termination fee, incur a $1.5 billion free for failing to complete a debt exchange and incur incremental interest expense of $350 million. Taken together, that would be around $4.7 billion in costs to WBD, which the board says, in effect, lowers the net amount of the termination fee Paramount would pay to WBD if a deal didn’t close – from the recently upped $5.8 billion to $1.1 billion.
The board’s letter also took issue with risks related to high amounts of debt financing in Paramount’s offer, which it says increase the risk of failure to close, particularly compared to the Netflix agreement.
And if a Paramount-WBD didn’t close, the board said WBD shareholders would incur significant costs and potential value destruction of the company – including the inability to pursue WBD’s planned separation of its global linear networks from the studio and streaming businesses into a standalone entity. Netflix’s agreement would give it ownership of assets like film and TV studios as well as HBO Max and HBO following completion of the planned company split.
The WBD board also claims that Paramount has repeatedly failed to submit the best proposal for WBD shareholders despite direction from WBD on what the offer lacks and ways to remedy.
“The WBD Board, management team and our advisors have extensively engaged with PSKY and its representatives and provided it with explicit instructions on how to improve each of its offers,” WBD’s letter to shareholders stated. “Yet PSKY has continued to submit offers that still include many of the deficiencies we previously repeatedly identified to PSKY, none of which are present in the Netflix merger agreement, all while asserting that its offers do not represent its ‘best and final’ proposal.”
Update as of January 8: On Thursday Paramount released a statement reaffirming its offer for WBD and the view that it presents superior value and a more certain, quick path to completion than the Netflix deal.
Per a January 8 release, Paramount claims WBD decided “not to engage” on Paramount’s latest offer for all of WBD. Paramount continued to insist that its latest amendment with inclusion of a personal guarantee by Larry Ellison “cured every issue raised by WBD on December 17.” The company asserts that despite the changes, WBD continues to raise issues with the bid that Paramount says it already addressed.
And it continued to push the view to shareholders that the total value of the Netflix transaction to WBD shareholders of cash and stock for the studio and streaming businesses, which today stands at $27.42 per share, is inferior to Paramount’s all-cash $30 per share offer for the entire company including global linear networks.
"Our offer clearly provides WBD investors greater value and a more certain, expedited path to completion,” said David Ellison, chairman and CEO of Paramount, in a statement. “Throughout this process, we have worked hard for WBD shareholders and remain committed to engaging with them on the merits of our superior bid and advancing our ongoing regulatory review process."
Netflix for its part put out a statement welcoming the continued commitment by WBD’s board to the SVOD giant's agreement.
"The WBD Board remains fully supportive of and continues to recommend Netflix's merger agreement, recognizing it as the superior proposal that will deliver the greatest value to its stockholders, as well as consumers, creators and the broader entertainment industry," said Ted Sarandos and Greg Peters, co-CEOs of Netflix, in a statement. "Netflix and Warner Bros. will bring together highly complementary strengths and a shared passion for storytelling. By joining forces, we will offer audiences even more of the series and films they love—at home and in theaters—expand opportunities for creators, and help foster a dynamic, competitive, and thriving entertainment industry."
Article updated with additional information and new statements from Paramount.