Warner Bros rejects Paramount’s revised offer, but gives studio a week to negotiate better deal
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Paramount’s current offer for Warner Bros comes to US$108.4 billion (S$137 billion).
PHOTO: AFP
LOS ANGELES – Warner Bros Discovery has rejected Paramount Skydance’s latest US$30 (S$38)-a-share hostile takeover bid. However, it is giving the Hollywood studio seven days to see if it can come up with a better deal to buy the owner of HBO Max and the Harry Potter franchise.
Paramount informally broached an even higher share price, US$31 a share, Warner Bros said, apparently attempting to entice the board to the table.
The rival bidder now has until Feb 23 to submit its “best and final offer”, which Netflix is allowed to match under the terms of the merger agreement, Warner Bros said on Feb 17.
“To be clear, our board has not determined that your proposal is reasonably likely to result in a transaction that is superior to the Netflix merger,” Warner Bros chairman Samuel DiPiazza Jr and chief executive David Zaslav said in a letter sent on Feb 17 to the Paramount board. “We continue to recommend and remain fully committed to our transaction with Netflix.”
An unidentified Paramount financial adviser said the offer would be raised to US$31 a share if Warner Bros agrees to open negotiations.
They could go even higher, Warner Bros said in the letter, adding that it now expects a best and final proposal to include a price above that amount.
Paramount’s current offer for the whole company comes to US$108.4 billion, while Netflix is offering US$82.7 billion just for its studio and streaming businesses.
Warner Bros, which has repeatedly rejected Paramount’s offers to buy the entire company, is moving forward with a vote on Netflix’s US$27.75-a-share bid for its studio and streaming services.
Shareholders will vote on March 20 on the Netflix merger, which will take place after Warner Bros spins off its Discovery Global cable operations – which include CNN, TLC, Food Network and HGTV – into a separate publicly traded company.
Discovery Global could fetch between US$1.33 per share and US$6.86 a share, according to Warner Bros estimates.
Warner Bros’ decision to engage with Paramount
Paramount previously said the board “never meaningfully engaged
A public hostile bid Paramount launched days later was rejected later that month.
Paramount’s revised offer, which included a personal guarantee on US$40 billion in equity from Oracle founder Larry Ellison, the father of Paramount CEO David Ellison, was turned down in early January.
Pressure from activist investor
The move to open talks with a rival bidder also comes as Warner Bros faces mounting pressure from activist investor Ancora Holdings, which has built a stake in the company and plans to oppose the Netflix transaction.
Paramount is also pressing to add directors to Warner Bros’ board, eyeing Pentwater Capital Management CEO Matt Halbower as a potential nominee. Pentwater, which owns about 50 million shares of Warner Bros, has backed Paramount’s bid.
“Every substantive complaint that the Warner Bros board had with Paramount’s previous offer has been addressed,” Mr Halbower said in an interview last week.
To start talks with Paramount, Warner Bros’ board secured a special waiver from Netflix.
Under its merger agreement, Warner Bros can engage with a rival bidder only if the board believes the offer could be superior, triggering a legal loophole that allows limited negotiations despite restrictions on talks.
Netflix issued a statement saying the deal has reached a milestone, with Warner Bros shareholders set to vote in March on the merger.
“While we are confident that our transaction provides superior value and certainty, we recognise the ongoing distraction for WBD stockholders and the broader entertainment industry caused by PSKY’s antics,” Netflix said.
Last week, Paramount made a new attempt to win over Warner Bros shareholders by enhancing its previous bid without raising its overall offer of US$30 per share.
Instead, Paramount has offered shareholders extra cash for each quarter the deal fails to close after 2026 and agreed to cover the US$2.8 billion break-up fee the HBO owner would owe Netflix if it walked away.
Warner Bros said the amended merger agreement with Paramount still falls short of what its board would consider a superior proposal.
The Paramount offer still leaves key issues unresolved, including who would cover a potential US$1.5 billion junior-lien financing fee, what would happen if debt financing falls through, and whether equity funding, backed by lead sponsor Larry Ellison, is fully certain, the Warner board wrote.
The letter noted that while Paramount has argued financing concerns are “not serious” given the “personal wealth of your lead equity sponsor and the credibility of your lending banks”, the draft agreements now require that, if debt financing becomes unavailable, additional equity must be funded to ensure the transaction can still close.
Ancora, which has a stake worth nearly US$200 million, said last week that Warner Bros’ board did not adequately engage in talks with Paramount Skydance about a rival offer for the whole company, including cable assets such as CNN and TNT. REUTERS
