Warner Bros board urges shareholders to stick with Netflix and reject Ellison bid

Rejection latest twist in battle for one of Hollywood’s most storied studios

Warner Bros Discovery rejected an amended takeover offer from Paramount Skydance and encouraged shareholders to stick with a deal it has in place with Netflix. Picture: Alamy

Warner Bros Discovery rejected an amended takeover offer from Paramount Skydance on Wednesday and encouraged shareholders to stick with a deal it has in place with Netflix, voicing skepticism about the interloper’s ability to pull off what it said would effectively be the largest leveraged buyout in history.

The snub came after billionaire Larry Ellison said he would personally guarantee $40.4bn (€34.5bn) in equity financing for Paramount’s hostile offer to buy shares at $30 apiece. Warner’s board said on Wednesday in a letter to shareholders that it has doubts that Paramount will be able to close the deal and that its proposal carries significant risks and uncertainties compared with Netflix’s offer of $27.75 per share in cash and stock for a portion of the company.

Paramount’s financing for the deal remains a key sticking point. The Warner Bros board reiterated concerns about more than $50bn (€42.7bn) of borrowing required. Paramount, with a market value of about $14bn (€11.9bn), is attempting an acquisition requiring $94.65bn (€80.95bn) of debt and equity financing, Warner Bros said in the letter, nearly seven times its total market capitalisation.

“The extraordinary amount of debt financing as well as other terms of the PSKY offer heighten the risk of failure to close, particularly when compared to the certainty of the Netflix merger,” the company said. “Changes in the performance or financial condition of either the target or acquiror, as well as changes in the industry or financing landscapes, could jeopardise these financing arrangements.”

Warner Bros’ rejection is the latest move in an increasingly acrimonious battle for one of Hollywood’s most storied studios. Paramount, which is controlled by Oracle chair Ellison and his son David, has been trying for months to win over Warner Bros, competing with the most valuable entertainment company in the world to acquire the home of films like Batman and Harry Potter, as well as HBO, one of the crown jewels of the TV business. Its attempts have been repeatedly rebuffed.

Instead, Warner Bros. announced a deal to sell its studios and streaming business to Netflix on December 5. Warner Bros plans to spin off its cable-TV networks to shareholders before the sale to Netflix closes. Paramount’s offer is for the whole of Warner Bros, including the cable assets. For both Netflix and Paramount, landing Warner Bros would reshape the entertainment industry, giving the new owner a coveted content library and the opportunity to expand streaming offerings.

Warner Bros. shares were little changed at $28.50 as trading got underway in New York. Paramount shares were down less than 1% to $12.48. Netflix was up 1.3% to $91.80.

After Paramount lost out to Netflix, it took its proposal directly to shareholders on December 8, offering to tender their shares for $30 each in cash. Shareholders have until January 21 to decide whether to accept Paramount’s tender offer. Several shareholders have said they expect Paramount to increase its bid.

It would cost Warner Bros $4.7bn to terminate its agreement with Netflix in favour of a Paramount deal, the board said in the letter. That includes a $2.8bn breakup fee that Warner Bros would owe to Netflix, a $1.5bn fee for failing to complete a debt exchange and additional borrowing expenses of about $350m, according to the letter. That would leave it with only $1.1bn of the $5.8bn termination fee offered by Paramount in the event the deal fell apart.

Paramount has argued that its offer is superior to that of Netflix, and more likely to win regulatory approval. Warner Bros has said it thinks both deals have an equal shot at clearing regulatory hurdles.

Netflix said on Wednesday that it has already submitted its regulatory filing and is engaging with antitrust authorities including the US Department of Justice and the European Commission.

Bloomberg