Warner Bros Discovery's board has unanimously turned down Paramount Skydance's latest attempt to acquire the studio, saying its revised $108.4 billion hostile bid amounted to a risky leveraged buyout that investors should reject.
In a letter to shareholders on Wednesday, Warner Bros' board said Paramount's offer hinges on "an extraordinary amount of debt financing" that heightens the risk of closing. It reaffirmed its commitment to streaming giant Netflix's $82.7 billion deal for the film and television studio and other assets.
Paramount and Netflix have been vying to win control of Warner Bros, and with it, its prized film and television studios and its extensive content library. Its lucrative entertainment franchises include "Harry Potter", "Game of Thrones", "Friends" and the DC Comics universe, as well as coveted classic films such as "Casablanca" and "Citizen Kane."
Paramount's financing plan would saddle the smaller Hollywood studio with $87 billion in debt once the acquisition closed, making it the largest leveraged buyout in history, the Warner Bros board told shareholders after voting against the $30-per-share cash offer on Tuesday.
The letter accompanied a 67-page amended merger filing where it laid out its case for rejecting Paramount's offer.
The revised Paramount offer "remains inadequate particularly given the insufficient value it would provide, the lack of certainty in PSKY’s ability to complete the offer, and the risks and costs borne by WBD shareholders should PSKY fail to complete the offer," the Warner Bros board wrote.
Paramount, which has a market value of about around $14 billion, proposed to use $40 billion in equity personally guaranteed by Oracle's billionaire co-founder Larry Ellison and $54 billion in debt to finance the deal.
Its financing plan would further weaken its credit rating, which S&P Global already rates at junk levels, and strain its cash flow – heightening the risk that the deal will not close, the Warner Bros board said.
Netflix, which has offered $27.75 a share in cash and stock, has a $400 billion market value and investment-grade credit rating.
The decision keeps Warner Bros on track to pursue the deal with Netflix, even after Paramount amended its bid on December 22 to address the earlier concerns about the lack of a personal guarantee from Ellison, who is Paramount's controlling shareholder and the father of its CEO David Ellison.
Warner Bros shares closed at $28.47 on Tuesday.
HIGH BREAK-UP FEES
Wednesday's filing said Warner Bros' board met on December 23 to review Paramount's amended offer and noted some improvements, including Ellison's personal guarantee and a higher reverse termination fee of $5.8 billion, but found "significant costs" associated with Paramount's bid compared with a Netflix deal.
Warner Bros would be obligated to pay the streaming service a $2.8 billion termination fee for abandoning its merger agreement with Netflix, $1.5 billion in fees to its lenders and about $350 million in additional financing costs.
Altogether, Warner Bros said it would incur about $4.7 billion in additional costs to terminate its deal with Netflix, or $1.79 per share.
The board repeated some concerns it had laid out on December 17, such as that Paramount would impose operating restrictions on the studio that would harm its business and competitive position, including barring the planned spin-out of the company's cable television networks into a separate public company, Discovery Global.
Paramount offered "insufficient compensation" for the damage done to the studio's business, if the Paramount deal failed to close, Warner Bros said.
Paramount "repeatedly failed to submit the best proposal" to Warner Bros shareholders, the board wrote, "despite clear direction" on the deficiencies in its bid and potential solutions.
TILTING THE POWER BALANCE IN HOLLYWOOD
The jockeying for Warner Bros has become Hollywood's most closely watched takeover battle, as studios race to scale up amid intensifying competition from streaming platforms and volatile theatrical revenues.
While Netflix's offer has a lower headline value, analysts have said it presents a clearer financing structure and fewer execution risks than Paramount's bid for the entire company, including its cable TV business.
Harris Oakmark, Warner Bros' fifth-largest investor, previously told Reuters that Paramount's revised offer was not "sufficient," noting it was not enough to cover the breakup fee.
Paramount has argued its bid would face fewer regulatory obstacles, but a combined Paramount-Warner Bros entity would create a formidable competitor to industry leader Disney and merge two major television operators and two streaming services.
The valuation of Warner Bros' planned Discovery Global spin-off, which includes cable television networks CNN, TNT Sports and the Discovery+ streaming service, is seen as a major sticking point.
Analysts peg the cable channels' value at up to $4 per share, while Paramount has suggested just $1.
Lawmakers from both parties have raised concerns about further consolidation in the media industry, and US President Donald Trump has said he plans to weigh in on the landmark acquisition.
