WBD rejects Paramount Skydance’s ‘illusory’ offer

Warner Bros Discovery (WBD) has advised its shareholders to reject Paramount Skydance’s takeover bid, accusing the David Ellison-led company of “consistently” misleading investors.

WBD had been expected to dismiss the $108bn offer from Paramount Skydance made last week, which the HBO owner described as “illusory”.

It added that the hostile bid did not meet “the criteria of a ‘Superior Proposal’ under the terms of WBD’s merger agreement with Netflix”, with the streamer offering $82.7bn in cash and shares for the streaming and studio assets of WBD.

The WBD board said it was “unanimously” reiterating its recommendation to support the Netflix deal, with the streamer also welcoming the decision.

‘More certain value’

“Following a careful evaluation of Paramount’s recently launched tender offer, the board concluded that the offer’s value is inadequate, with significant risks and costs imposed on our shareholders,” said Samuel A. DiPiazza, Jr., chair of the WBD board.

DiPiazza said the Netflix proposal would offer investors “more certain value” and accused Paramount Skydance of failing to “address key concerns that we have consistently communicated to Paramount throughout our extensive engagement and review of their six previous proposals”.

Ellison had previously told investors that WBD had not responded to his company’s most recent proposal.

The WBD board said the most recent Paramount Skydance offer “remains inferior” to the Netflix deal, which would give shareholders $23.25 in cash, plus $4.50 in shares of Netflix common stock and shares in cable spin-off Discovery Global.

Paramount Skydance had offered $30 per share for the entirety of WBD, but the HBO owner’s board said funding sources for the offer had not been made clear.

“[Paramount Skydance] has consistently misled WBD shareholders that its proposed transaction has a ‘full backstop’ from the Ellison family. It does not, and never has,” the board wrote in a letter to shareholders.

The proposal, they said, includes a $40.65bn commitment that is not being funded by the Ellison family and which will in turn cause risk for the deal completing.

“Instead, they propose that you rely on an unknown and opaque revocable trust for the certainty of this crucial deal funding.

“Despite having been told repeatedly by WBD how important a full and unconditional financing commitment from the Ellison family was – and despite their own ample resources, as well as multiple assurances by [Paramount Skydance] during our strategic review process that such a commitment was forthcoming – the Ellison family has chosen not to backstop the [Paramount Skydance] offer.”

WBD added that its deal with Netflix “is a binding agreement with enforceable commitments, with no need for any equity financing and robust debt commitments”.

“The Netflix merger is fully backed by a public company with a market cap in excess of $400 billion with an investment grade balance sheet.

“The debt financing for the [Paramount Skydance] bid relies on an unsecure revocable trust commitment as well as the credit worthiness of a $15 billion market cap company with a credit rating at or only a notch above “junk” status from the two leading rating agencies,” the letter read.

‘Synergies & supporting Hollywood’

WBD also claimed Paramount Skydance was planning to find $9bn in “synergies” - made up of $3bn at the Yellowstone firm and $6bn at WBD -  which Zaslav-led company said were “both ambitious from an operational perspective and would make Hollywood weaker, not stronger.”

The company also addressed comments from Paramount Skydance that the takeover process had not been fair, describing its review as “full, transparent and competitive”.

It continued: “The board repeatedly engaged with all parties, including extensive engagement with [Paramount Skydance] and its advisors over the course of nearly three months.

“We held dozens of calls and meetings with its principals and advisors including four in-person meetings and meals between David Zaslav and David and/or Larry Ellison and provided multiple opportunities for [Paramount Skydance] to offer a proposal that was superior to those of the other bidders, which [Paramount Skydance] never did.

“After each bid, we informed [Paramount Skydance] of the material deficiencies and offered potential solutions. Despite this feedback, [Paramount Skydance] has never submitted a proposal that is superior to the Netflix merger agreement.

“Despite [Paramount Skydance]’s media statements to the contrary, the Board does not believe there is a material difference in regulatory risk between the [Paramount Skydance] offer and the Netflix merger.”

Risk and rewards 

WBD’s board added it believed the regulatory risks around both deals were similar, describing the Paramount Skydance offer as “illusory” and could be terminated or amended at any time prior to its completion.

“The [Paramount Skydance] offer provides an untenable degree of risk and potential downside for WBD shareholders,” the letter went on, noting WBD would have to pay Netflix a $2.8bn termination fee if the deal with Netflix does not close.

“We look forward to moving ahead with our combination with Netflix and delivering the compelling and certain value it will create for shareholders,” it concluded.

Netflix welcomed WBD’s support for its offer, reiterating WBD’s concerns around the financing of the Paramount Skydance bid, which it labelled an “unsolicited, inferior and illusory tender offer.” 

Netflix co-chief exec Ted Sarandos said: “The Warner Bros. Discovery Board reinforced that Netflix’s merger agreement is superior and that our acquisition is in the best interest of stockholders.

“This was a competitive process that delivered the best outcome for consumers, creators, stockholders and the broader entertainment industry. Netflix and Warner Bros. complement each other, and we’re excited to combine our strengths with their theatrical film division, world-class television studio, and the iconic HBO brand, which will continue to focus on prestige television.

“We’re also fully committed to releasing Warner Bros. films in theaters, with a traditional window, so audiences everywhere can enjoy them on the big screen.”

Netflix co-chief exec Greg Peters added: “By acquiring Warner Bros., we’ll be able to offer audiences and creators around the world even more choice, value and opportunity. This transaction is fundamentally pro-consumer, pro-innovation, pro-creator and pro-growth.

“Together we will deliver an even broader selection of great series and films that audiences can watch at home and in theaters, while driving long-term value for our stockholders. We’re excited to begin this new chapter and continue to entertain and delight fans around the world.”