Warner Bros Discovery board rejects Paramount's $108 bn hostile bid

Paramount took its bid directly to Warner Bros' shareholders last week after the company announced a deal with Netflix on December 5

Warner Bros Discovery on Wednesday recommended its shareholders to reject a hostile takeover bid by Paramount Skydance Corp, calling the offer "inferior" and "inadequate". The board has said that a rival bid from Netflix will be better for customers.

 

In a letter to shareholders filed with regulators, the Warner Bros Discovery board said Paramount’s $108.4 billion cash offer failed to provide credible and unconditional financing assurances and carried substantial financial and operational risks. 

 

Paramount took its bid directly to Warner shareholders last week after the company announced a deal with Netflix on December 5. Paramount has offered $30 per Warner share, compared with Netflix’s $27.75, and asked investors to reject the Netflix transaction. 

 

 

What did Warner Bros say?

 

The Warner board disputed Paramount’s claims that its offer is fully guaranteed by the Ellison family, led by Oracle founder Larry Ellison. It said the latest proposal relies on backing from "an unknown and opaque" Lawrence J Ellison Revocable Trust, whose assets and liabilities are not publicly disclosed and can change at any time. 

 

"A revocable trust is no replacement for a secured commitment by a controlling shareholder," the board said.

 

By contrast, the Netflix agreement is described as a binding transaction that requires no equity financing and is supported by firm debt commitments. Netflix, with a market capitalisation above $400 billion and an investment-grade balance sheet, has also agreed to maintain theatrical releases for Warner films, Reuters reported.

 

Paramount’s proposal includes acquiring Warner’s cable networks and news operations, potentially bringing CBS and CNN under common ownership. Netflix’s deal excludes the cable business and would close only after Warner completes its previously announced separation of those assets.

 

Warner’s board also raised concerns about Paramount’s financial position, noting its $15 billion market capitalisation and credit rating just above junk status. Should the deal close, Paramount would have a debt ratio of 6.8 times its operating income "with virtually no current free cash flow, the board said. 

 

It added that the bidder would also impose "onerous operating restrictions" on the company, during the potentially lengthy period between signing and closing, including limits on new content licensing deals.

 

The Warner Bros Discovery said it had held dozens of discussions with Paramount executives and advisers and had outlined concerns after each approach. “Despite this feedback, Paramount has never submitted a proposal that is superior to the Netflix merger agreement,” the board wrote.

 

A landmark deal for movie industry

Both bids face intense regulatory scrutiny in the United States and abroad, given their potential to reshape the media and entertainment industry. Critics of the Netflix deal argue that combining Netflix with HBO Max could create excessive market power. 

 

US President Donald Trump has also previously said Netflix’s deal "could be a problem" because of market concentration. 

 

While the board clearly favours the Netflix offer, shareholders can still choose to tender their shares in favour of Paramount’s proposal.

 

(With inputs from Reuters and the Associated Press)