In a dramatic turn of events, Warner Bros Discovery, the parent company of HBO and CNN, has urged its shareholders to dismiss a hostile takeover bid from Paramount Skydance. Instead, it is advocating for its original agreement with Netflix, labeling the Paramount offer as “inferior” and “inadequate.” The decision was announced as Warner Bros plans to spin off its cable networks, including CNN and TNT, into a separate entity before finalizing the Netflix deal.
Paramount, which owns CBS and Nickelodeon, has been directly appealing to Warner Bros shareholders with an offer to acquire the entire company. This comes after Warner Bros’ board agreed to sell its streaming and studios businesses to Netflix. Paramount’s proposal includes a cash offer of $30 per share for the whole company, encompassing its cable networks. In contrast, the Netflix deal offers Warner Bros shareholders $27.75 per share in cash and Netflix stock, along with shares in the new cable network company.
Concerns Over Paramount’s Offer
Warner Bros has raised several concerns regarding the Paramount bid, particularly highlighting the uncertainty of its financing and the risk of potential deal termination. Paramount’s bid values Warner Bros at $108.4 billion, including assumed debt, while the Netflix proposal values the assets at approximately $82.7 billion. Warner Bros shareholders are set to receive shares of the cable spinoff as part of the Netflix agreement.
“Our proposal clearly offers Warner Bros shareholders superior value and certainty, a clear path to close, and does not leave them with a heavily indebted sub-scale linear business,” stated David Ellison, CEO of Paramount.
Despite this, Warner Bros’ board has flagged risks in the Paramount offer, including the Ellison family’s failure to adequately backstop their $40.7 billion equity commitment. The board described the equity as being supported by “an unknown and opaque revocable trust,” raising concerns about the proposal’s reliability.
Financial Implications and Expert Opinions
The Paramount offer includes $54 billion in debt commitments from major financial institutions like Bank of America Corp., Citigroup, and Apollo, along with plans to raise $41 billion in equity. Notably, the Ellison family is expected to contribute $11.8 billion, with additional financing from Middle Eastern sovereign wealth funds and RedBird Capital Partners. However, Affinity Partners, an investment firm founded by Jared Kushner, withdrew from the process, adding to the uncertainty.
Forrester analyst Mike Proulx commented, “Warner Bros’ formal rejection of Paramount’s offer changes nothing. The ultimate decision still rests with Warner Bros shareholders, and that vote is months away.”
The Paramount proposal also requires Warner Bros to pay a $2.8 billion breakup fee to Netflix, further complicating the financial landscape. Warner Bros’ board has unanimously recommended the Netflix deal, emphasizing its superiority in terms of value and reduced risk.
Strategic Maneuvers and Market Reactions
Netflix has reiterated its position, with co-CEO Ted Sarandos urging Warner Bros shareholders to approve the agreement, highlighting the merger’s benefits. The market reacted with Warner Bros shares dropping 2% to $28.32, while Netflix shares rose by 0.5% and Paramount shares fell by 4.2%.
David Ellison has made multiple unsolicited bids to acquire Warner Bros, initially proposing the idea in a meeting with Warner Bros CEO David Zaslav on September 14. Despite the board’s rejection, Ellison’s persistent pursuit has attracted interest from Netflix, Comcast, and other potential bidders.
According to regulatory filings, Zaslav informed the Warner Bros board that the Ellisons indicated a transaction would result in a compensation package “worth several hundred millions of dollars,” a claim he deemed inappropriate to discuss at the time.
The strategic review initiated by Warner Bros has led to private negotiations with multiple suitors, with Netflix, Comcast, and Paramount emerging as the most serious contenders. However, the board’s concerns about Paramount’s aggressive tactics and disorganized approach have been a significant factor in their decision-making process.
As the situation unfolds, the focus remains on Warner Bros shareholders, who hold the ultimate decision-making power. The coming months will be crucial as they weigh the potential risks and benefits of the competing offers.
