Warner Bros Discovery’s board has rejected Paramount Skydance’s $108.4bn hostile takeover bid and accused the studio giant of misleading shareholders about its financing.
In a letter to shareholders on Wednesday, the Warner Bros board wrote that Paramount “consistently misled” Warner Bros shareholders that its $30-per-share cash offer was fully guaranteed, or “backstopped”, by the Ellison family, led by billionaire Oracle cofounder Larry Ellison, whose son David runs Paramount Skydance.
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Paramount has been in a race with Netflix to win control of Warner Bros and its prized film and television studios, HBO Max streaming service and franchises like Harry Potter. After Warner Bros accepted the streaming giant’s offer, Paramount launched a hostile offer to outdo that bid.
“It does not, and never has,” the board wrote of the guarantee of Paramount’s offer, noting that the offer posed “numerous, significant risks”.
The board said it found Paramount’s offer “inferior” to Netflix’s $27.75 per share offer, which is a binding agreement that requires no equity financing and has robust debt commitments, the board wrote.
The board also said the offer could be terminated or amended at any time before the deal’s completion, which is not the same as a binding merger agreement.
Warner Bros has not yet set a date for a shareholder vote on the deal, but it is expected to happen sometime in spring or early summer, its chairman, Samuel Di Piazza, said in an interview with CNBC.
The Ellisons have cited their relationship with United States President Donald Trump as a reason why the deal would face an easier regulatory path.
“The Warner Bros Discovery Board reinforced that Netflix’s merger agreement is superior and that our acquisition is in the best interest of stockholders,” its co-CEO Ted Sarandos said in a statement.
Netflix is already talking with the US Department of Justice and the European Commission, its other co-CEO, Greg Peters, told CNBC while expressing confidence in how regulators would view the deal.
Netflix has told Warner Bros it would keep releasing the studio’s films in cinemas in a bid to ease fears that the deal would eliminate another studio and major source of theatrical films, according to people familiar with the matter.
Paramount’s case
Paramount last week took its case directly to Warner Bros shareholders, arguing it had arranged “air-tight financing” to support its bid with $41bn in new equity assured by the Ellison family and RedBird Capital and $54bn of debt commitments from the Bank of America, Citi and Apollo.
The board decision came a day after Affinity Partners, a fund backed by Trump’s son-in-law Jared Kushner and one of the funding sources of the Paramount offer, pulled out of the deal. The amount Affinity Partners was contributing to the offer was not disclosed in Paramount’s latest filings with the Securities and Exchange Commission.
“With two strong competitors vying to secure the future of this unique American asset, Affinity has decided no longer to pursue the opportunity,” the firm said in a statement.
“The dynamics of the investment have changed significantly since we initially became involved in October. We continue to believe there is a strong strategic rationale for Paramount’s offer.”
The Warner Bros board countered that Paramount’s latest offer included an equity commitment “for which there is no Ellison family commitment of any kind” but rather the backing of “an unknown and opaque” Lawrence J Ellison Revocable Trust, whose assets and liabilities are not publicly disclosed and are subject to change.
“Despite having been told repeatedly by WBD how important a full and unconditional financing commitment from the Ellison family was, … the Ellison family has chosen not to backstop the PSKY offer,” the Warner Bros board wrote.
“A revocable trust is no replacement for a secured commitment by a controlling shareholder.”
Paramount had submitted a total of six bids to acquire the entire Warner Bros studio, including its television networks, such as CNN and TNT Sports.
It has previously said the Ellison family trust – which Paramount says contains more than $250bn in assets, including about 1.16 billion shares of Oracle – is more than adequate to cover the equity commitment.
Warner Bros had raised questions about Paramount’s financial condition and creditworthiness. The offer relied on a seven-party, cross-conditional structure with the Ellison Revocable Trust providing 32 percent of the required equity commitment while capping its liability at $2.8bn, Warner Bros said. It noted that the trust’s assets could have been withdrawn at any time.
On Wall Street, Paramount Skydance’s stock tumbled on the news. It was down 3.8 percent from the market open. Warner Bros Discovery was down 0.4 percent while Netflix was surging – up 2.8 percent.