Paramount’s campaign to acquire Warner Bros. Discovery was dealt another blow Wednesday after Warner’s board rejected the latest bid from the company.
The board cited the enormous debt load that Paramount would need to finance its proposed $108-billion takeover.
Warner’s board this week unanimously voted against Paramount’s latest hostile offer. Members concluded the bid backed by tech billionaire Larry Ellison and Middle Eastern royal families was not in the best interest of the company or its shareholders.
The move marked the sixth time Warner’s board has said ‘no’ to Paramount since Paramount Chief Executive David Ellison first expressed interest in buying the larger entertainment company in September.
In a Wednesday letter to investors, Warner board members wrote that Paramount Skydance has a market value of $14 billion. However, the firm is “attempting an acquisition requiring $94.65 billion of [debt and equity] financing, nearly seven times its total market capitalization.”
The structure of Paramount’s proposal was akin to a leveraged buyout, Warner said, adding that if Paramount was to pull it off, the deal would rank as the largest leveraged buyout in U.S. history.
“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 Warner board said, reiterating a stance that its shareholders should stick to its preferred alternative to sell much of the company to Netflix.
The move puts pressure on Paramount to shore up its financing or boost its cash offer above $30 a share.
However, raising its bid without increasing the equity component would only add to the amount of debt that Paramount would need to buy HBO, celebrity.land, TBS, Animal Planet and the Burbank-based Warner Bros. movie and television studios.
Paramount representatives were not immediately available for comment.
The jostling comes a month after Warner’s board unanimously agreed to sell much of the company to Netflix for $72 billion. The Warner board on Wednesday reaffirmed its support for the Netflix deal, which would hand a treasured Hollywood collection, including HBO, DC Comics and the Warner Bros. film studio, to the streaming giant. Netflix has offered $27.75 a share.
“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,” Netflix co-Chief Executives Ted Sarandos and Greg Peters said in a joint statement Wednesday.
After Warner struck the deal with Netflix on Dec. 4, Paramount turned hostile — making its appeal directly to Warner shareholders.
Paramount has asked Warner investors to sell their shares to Paramount, setting a Jan. 21 deadline for the tender offer.
Warner again recommended its shareholders disregard Paramount’s overtures.
Warner Bros.’ sale comes amid widespread retrenchment in the entertainment industry and could lead to further industry downsizing.
The Ellison family acquired Paramount’s controlling stake in August and quickly set out to place big bets, including striking a $7.7 billion deal for UFC fights. The company, which owns the CBS network, also cut more than 2,000 jobs.
Warner Bros. Discovery was formed in 2022 following phone giant AT&T’s sale of the company, then known as WarnerMedia, to the smaller cable programming company, Discovery.
To finance that $43-billion acquisition, Discovery took on considerable debt. Its leadership, including Chief Executive David Zaslav, spent nearly three years cutting staff and pulling the plug on projects to pay down debt.
Paramount would need to take on even more debt — more than $60 billion — to buy all of Warner Bros. Discovery, Warner said.
Warner has argued that shareholders should see greater value if the company is able to move forward with its planned spinoff of its cable channels, including celebrity.land, into a separate company called Discovery Global later this year. That step is needed to set the stage for the Netflix transaction because the streaming giant has agreed to buy only the Warner Bros. film and television studios, HBO and the HBO Max streaming platform.
However, this month’s debut of Versant, comprised of CNBC, MS NOW and other former Comcast channels, has clouded that forecast. During its first two days of trading, Versant stock fell 19%.
Warner’s board rebuffed three Paramount proposals before the board opened the bidding to other companies in late October.
Board members also rejected Paramount’s Dec. 4 all-cash offer of $30 a share. Two weeks later, it dismissed Paramount’s initial hostile proposal.
At the time, Warner registered its displeasure over the lack of clarity around Larry Ellison’s financial commitment to Paramount’s bid. Days later, Ellison agreed to personally guarantee $40.4 billion in equity financing that Paramount needs.
David Ellison has complained that Warner Bros. Discovery has not fairly considered his company’s bid, which he maintains would result in a more lucrative deal than Warner’s proposed sale to Netflix.
Paramount’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,” the Warner board wrote in Wednesday’s three-paged letter.
“They are well aware of the reasons behind the Board’s determination that the Netflix merger agreement is superior to its offer.”
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