Warner Bros Discovery (WBD) has again told its shareholders to reject an “inadequate” $108.4bn (£80bn) hostile takeover bid by Paramount Skydance amid an extraordinary corporate battle to control the media conglomerate.
Paramount, controlled by the billionaire Ellison family, had sought to combat WBD’s criticism of its offer and claims it had “consistently misled” investors by saying it had a “full backstop” – a safety net to ensure it has sufficient funds – from the Ellisons.
Larry Ellison, co-founder of Oracle, last week agreed to provide a personal guarantee worth more than $40bn. Paramount said this could tackle WBD’s “amorphous need” for financial flexibility.
Paramount is fighting to unravel the $82.7bn deal WBD has agreed with Netflix, through which the streaming service is aiming to acquire WBD’s storied movie studios, HBO cable network and HBO Max streaming service.
Unlike Netflix, Paramount has bid for the entire company – which also includes CNN, the Cartoon Network and the Discovery Channel. But WBD’s board has said its bid was “inadequate”, with “significant” risks and costs.
In a letter to shareholders on Wednesday, it said: “Your board unanimously determined that the amended offer remains inadequate particularly given the insufficient value it would provide, the lack of certainty in Paramount Skydance’s ability to complete the offer, and the risks and costs borne by WBD shareholders should Paramount Skydance fail to complete the offer.”
In a filing accompanying the letter, WBD called the hostile bid, even with the new Ellison backstop, the “largest LBO [leveraged buyout] in history”, a structure it said poses risks to the offer.
Under the terms of its deal with Netflix, WBD would have to pay a $2.8bn breakup fee if it walked away from the agreement.
Paramount Skydance’s revised offer alsoinvolved increasing its termination fee to $5.8bn, matching Netflix.
However, WBD said if it were to accept the deal with Paramount it would incur $4.7bn in costs, including the breakup fee to Netflix, additional interest on debt and a $1.5bn fee for failing to complete a debt exchange.
The Netflix deal for the Warner Bros studios, HBO and HBO Max, and Paramount’s approach for all of WBD, are widely expectedly to face strong regulatory scrutiny. Prominent lawmakers and entertainment industry operators have expressed concern, and Donald Trump indicated that he intends to be involved.
On Wednesday, Ted Sarandos and Greg Peters, co-chief executives of Netflix, said WBD recognises its offer as the “superior proposal”.
The company also said it had submitted a mandatory pre-merger notification with regulators and was engaging with competition authorities, including the US Department of Justice and the European Commission.
Paramount Skydance has yet to comment on the rejection of its latest offer. The company must now decide whether to continue with its hostile bid and take its offer directly to WBD shareholders, or raise its $30 per share bid and respond to the criticisms made by WBD’s board.
However, the company has previously said its latest offer is not its “best and final” proposal.
WBD’s share price was roughly flat in early trading after the widely expected rebuffal. However, the bidding battle to take over the group has pushed its share price up by almost 170% over the past year.
Sarandos and Peters said: “The WBD board remains fully supportive of and continues to recommend Netflix’s merger agreement, recognising it as the superior proposal that will deliver the greatest value to its stockholders, as well as consumers, creators and the broader entertainment industry.”
