David Zaslav-led company ‘unanimously reiterates’ support for Netflix deal
Warner Bros. Discovery (WBD) has urged shareholders to reject Paramount Skydance’s latest offer to buy the US studio, despite a $40bn (£29.9bn) personal guarantee from Larry Ellison.
The Oracle founder, father of Paramount Skydance chief exec David Ellison, agreed in late December to provide the hefty backstop in an attempt to persuade investors to eschew Netflix’s proposal to buy the studio and streaming assets in favour of Paramount’s attempt to acquire the entire company.
That move came after WBD said that the backstop provided by the Ellison family trust – which was included in Paramount’s 4 December proposal to WBD and the 8 December tender offer to WBD shareholders – was inadequate, and that the only fix would be a personal guarantee from the billionaire father of Paramount chief executive David Ellison.
That, however, has not persuaded the WBD board to change its decision to favour Netflix, with the HBO owner confirming today that it has “unanimously determined” that Paramount Skydance’s amended offer ”is not in the best interests” of the company or its shareholders.
‘Costs, risks and uncertainties’
In a letter to investors, the WBD board wrote that Paramount Skydance’s all-cash offer of $30 per share – valuing the entirety of WBD at $108bn – is “inferior given significant costs, risks and uncertainties as compared to the Netflix merger.”
The streamer’s 5 December deal struck with WBD would see Netflix acquire its film and television studios, HBO Max and HBO, but not Discovery Global. The agreement is a cash and stock transaction valued at $27.75 per WBD share, with a total enterprise value of $82.7bn.
WBD’s statement today claimed that the Elllison-led company’s revised offer did not meet the criteria of a “superior proposal” to Netflix’s, pointing to what it termed as “an extraordinary amount of debt financing” that could create a risk that the deal would not be completed.
WBD’s board pointed to Paramount Skydance – with a market cap of $14bn – “attempting an acquisition requiring $94.65bn of debt and equity financing,” versus Netflix’s $400bn market cap and a better credit rating.
Shareholders would also benefit from ownership in Discovery Global if the Netflix deal is completed, WBD said, but Paramount Skydance disputes the value placed against the cable network-dominated offshoot.
NBCUniversal recently spun off its cable operations into standalone entity Versant, but shares have shed more than 20% of their value since trading began earlier this year.
WBD’s letter also highlighted that terminating the Netflix deal ($2.8bn), debt exchange charges ($1.5bn), and additional interest ($350m) would cost shareholders approximately $4.7bn.
That would largely negate the fact that Paramount Skydance agreed to match Netflix’s termination fee of $5.8bn late last year, WBD said.
‘Best and final’ offer dispute
WBD’s rejection of Paramount Skydance’s latest revised offer comes three weeks after the company urged shareholders to support the Netflix buy-out.
At that time, the HBO owner’s board described the Paramount offer as “illusory” and doubled down on that language in today’s letter.
“Paramount Skydance has repeatedly failed to submit the best proposal for WBD shareholders despite clear direction from WBD on both the deficiencies and potential solutions,” the board wrote.
“The WBD board, management team and our advisors have extensively engaged with Paramount Skydance and its representatives and provided it with explicit instructions on how to improve each of its offers.
“Yet Paramount Skydance has continued to submit offers that still include many of the deficiencies we previously repeatedly identified to Paramount Skydance, none of which are present in the Netflix merger agreement, all while asserting that its offers do not represent its ‘best and final’ proposal.
“Paramount Skydance’s transaction team, including many of their employees, several law firms, investment and lending banks and consultants, had several months to engage extensively with WBD. They are well aware of the reasons behind the Board’s determination that the Netflix merger agreement is superior to its offer.
“If on December 4 Paramount Skydance did not recognise the weaknesses of its proposal when the Board concluded the process, it has now had several weeks to study the Netflix merger agreement and adjust its offer accordingly. Instead Paramount Skydance has, for whatever reason, chosen not to do so.”
Netflix co-chief execs, Ted Sarandos and Greg Peters, issued their own statement, adding: “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.
“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.”
Paramount maintains there is a lack of clarity from the WBD board regarding the calculations through which it has concluded the Netflix offer is superior. Shareholders have until 21 January to take up the latest offer from the Ellisons.
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