Paramount again tells Warner Bros its offer trumps Netflix’s

NEW YORK - Paramount Skydance on Jan 8 reiterated that its US$108.4 billion (S$139 billion) bid for Warner Bros Discovery was superior to a rival deal from Netflix, saying the value of the cable spinoff central to the streaming giant’s offer was effectively worthless.

Warner Bros Discovery’s board on Jan 7 rejected Paramount’s amended hostile offer that included a US$40 billion in equity personally guaranteed by Oracle co-founder Larry Ellison, the father of Paramount chief executive officer David Ellison, and US$54 billion in debt.

The CBS parent and Netflix have been in a heated battle for Warner Bros, its prized film and television studios, and its extensive content library that includes “Harry Potter” and the DC Comics universe.

Paramount’s argument - one it is using to sway investors - is that its all-cash US$30-per-share offer for the whole of Warner Bros is superior to Netflix’s US$27.75 a share cash-and-stock deal for the studios and streaming assets and will more easily clear regulatory hurdles. The Netflix deal is worth US$82.7 billion.

In its response on Jan 8, Paramount even went so far as to suggest that the cable properties of CNN and Discovery, which Netflix does not want, are effectively worth less than nothing, based on an equity valuation of the recently floated Versant Media, a Comcast spinoff that includes digital assets and TV channels such as CNBC. That stock has dropped 18 per cent since its market debut on Jan 5.

That sour performance has given fresh ammunition to Paramount’s campaign to convince Warner Bros shareholders its offer is better. On Jan 8, it said it values the Warner Bros cable spinoff at zero - or even less than that, due to its high leverage and lagging performance.

“While Discovery Global equity would have no equity value if the company trades in line with Versant, there are in fact several compelling reasons why it should trade at a discount to Versant,” Paramount said on Jan 8.

Paramount said the Netflix offer would reduce the cash paid to shareholders if Warner Bros loads more debt onto the merger. The company argues the cash payout could drop to US$20 per share, from the current offer of US$23.25, if Warner Bros were to adopt the leverage in line with Versant.

Warner Bros did not immediately respond to a request for comment. Netflix cited its Jan 7 statement that its offer is the superior deal and will deliver the greatest value.

Shares of both Warner Bros and Netflix were down nearly 1 per cent, while those of Paramount ticked up 0.6 per cent.

“It would be surprising if the shareholders were swayed by the argument because they’ve likely already considered the declining value of linear TV assets when they agreed to split the company and sell the growing portion to Netflix,” said Mr Ross Benes, senior analyst at eMarketer.

“But Paramount has a point - fading TV networks aren’t appealing to most investors.”

Paramount’s tender offer will expire on Jan 21, but the company can extend it.

‘Inadequate’ Paramount bid

Warner Bros has argued that Paramount’s revised Dec 22 bid “remains inadequate”, citing uncertainty regarding the CNN parent’s ability to finalise the transaction, and the exposure of Warner Bros shareholders to significant risks and costs in the event of deal failure.

The board said Paramount’s offer hinges on “an extraordinary amount of debt financing” that heightens the risk of closing.

Netflix’s deal requires no equity financing and is backed by US$59 billion in debt from banks including Wells Fargo, BNP Paribas and HSBC Holdings.

Warner Bros has also said it would owe Netflix a US$2.8 billion termination fee if it walks away from the agreement, part of US$4.7 billion in extra costs to end the deal.

Paramount did not offer to cover the costs on Jan 8.

Warner Bros chairman Samuel Di Piazza has said the company is not currently negotiating with Paramount but is open to a deal if Paramount can “put something on the table that is compelling.”

Some Warner Bros investors, including the seventh-largest shareholder Pentwater Capital, have argued that the board was making a mistake not engaging with Paramount.

Regulatory scrutiny

For either suitor, winning shareholder support is only the first hurdle for a deal that would face tough scrutiny by the antitrust regulators in the US and Europe.

Bipartisan lawmakers have raised concerns about the potential harm for consumers and creatives and US President Donald Trump has said he plans to weigh in on the deals.

Paramount’s bid will create a studio bigger than market leader Disney and fuse two major TV operators, which some Democratic senators say will control “almost everything Americans watch on TV”.

For Netflix, a lightning rod in Hollywood over its streaming-first approach, the deal would cement its dominance with a combined 428 million subscribers. It has promised to honour Warner Bros’ theatrical commitments. REUTERS