Warner Bros. Discovery Rejects Paramount Bid, Sets New Offer Deadline
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Warner Bros. Discovery rejected Paramount Skydance's latest USD 30 per share hostile bid, which aimed to top an existing agreement to sell its businesses, including HBO Max and the "Harry Potter" franchise, to Netflix. The media giant has now given Paramount seven days, until Feb. 23, to submit a "best and final" proposal.
This new proposal must aim to surpass an existing agreement Warner Bros. Discovery holds with Netflix. Under their merger terms, Netflix is permitted to match any superior offer.
Paramount had informally suggested an even higher per-share price of USD 31, which reportedly interested the Warner Bros. Discovery board. However, the company's response indicates a preference for its deal with Netflix.
Warner Bros. Discovery Chairman Samuel DiPiazza Jr. and CEO David Zaslav stated their board had not determined Paramount's proposal was "reasonably likely to result in a transaction that is superior to the Netflix merger." They added commitment to the Netflix transaction.
Paramount acknowledged the seven-day offer, describing Warner Bros. Discovery's board actions as "unusual." Paramount affirmed it would continue its tender offer, oppose the Netflix merger, and nominate directors for the upcoming annual meeting.
The high-stakes contest is for control of Warner Bros. Discovery's extensive film and television library, including "Casablanca," "Citizen Kane," "Friends," and "Batman," along with its flagship studios.
Warner Bros. Discovery expects a bid exceeding USD 31 per share. This is based on a Paramount financial adviser's oral statement indicating a willingness to agree to this price if deal talks were reopened.
PP Foresight analyst Paolo Pescatore commented, "Time is running out for Paramount with this saga wrangling on, for way too long, which is in no one's interest." He noted the ball is "in Paramount's court."
Paramount's current offer for the entire company amounts to USD 108.4 billion. Netflix is offering USD 27.75 per share, or USD 82.7 billion, specifically for Warner Bros. Discovery's studio and streaming businesses.
Warner Bros. Discovery shareholders are scheduled to vote on the Netflix deal on March 20. If approved, the merger would follow a spin-off of Discovery Global cable operations into a separate, publicly traded company.
Discovery Global, which includes prominent cable networks, is estimated to be valued between USD 1.33 and USD 6.86 per share. This engagement with Paramount marks a shift, as Warner Bros. Discovery had previously rejected numerous offers.
Activist investor Ancora Holdings, with a stake worth nearly USD 200 million, plans to oppose the Netflix transaction. Ancora had criticised the board for insufficient engagement with Paramount Skydance over a whole-company offer.
Paramount is also pressing to add directors to Warner Bros. Discovery's board, with Pentwater Capital Management CEO Matt Halbower a potential nominee. Pentwater, a significant shareholder, supports Paramount's bid.
Halbower stated that "Every substantive complaint that the Warner Bros board had with Paramount's previous offer has been addressed." Alex Fitch, a Harris Oakmark partner, added that Paramount now has the opportunity to make a "truly superior proposal."
Warner Bros. Discovery's board secured a special Netflix waiver to engage in these discussions. Netflix expressed confidence in its own transaction, acknowledging the "ongoing distraction" for shareholders.
Paramount enhanced its previous bid without increasing the USD 30 per share offer. It proposed covering the USD 2.8 billion breakup fee Warner Bros. Discovery would owe Netflix and offered WBD's shareholders extra cash for each quarter the deal fails to close after this year.
However, Warner Bros. Discovery still deems the amended Paramount offer inferior. Key issues remain unresolved, including a potential USD 1.5 billion junior lien financing fee, what happens if debt financing falls through, and the certainty of equity funding from lead sponsor Larry Ellison.
The Warner Bros. Discovery board highlighted that despite Paramount arguing financing concerns were "not serious," draft agreements require additional equity funding if debt financing becomes unavailable.
The proposed deal is expected to face stringent regulatory scrutiny over potential price increases for consumers and harm to creatives. Both Paramount and Netflix are engaging with competition authorities globally.
Warner Bros. Discovery rejected Paramount Skydance's USD 30 per share acquisition offer.
Paramount has until Feb. 23 to submit a "best and final" offer, which Netflix can match.
Warner Bros. Discovery's board stated a preference for its existing agreement with Netflix.
Source: REUTERS