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Warner Bros. Discovery has rejected Paramount’s $108 billion hostile bid as “inadequate” despite a personal pledge by Oracle co-founder and billionaire Larry Ellison to block financing for the takeover.
In a letter to shareholders released Wednesday, WBD’s board stressed that the $83 billion deal it struck last month with Netflix for its studios and streaming business was better than Paramount’s offer for the entire company, including legacy TV properties like CNN.
WBD said the Paramount offer would be “truly…the largest leveraged buyout in history”, which would result in WBD borrowing $54 billion from lenders including Bank of America, Citigroup and Apollo to finance the deal.
“This aggressive transaction structure creates materially greater risk for WBD” than the Netflix proposal, the board said of Paramount’s financing plan. “The extraordinary amount of debt financing … (the deal) increases the risk of failure to close.”
The WBD board, which voted unanimously Tuesday to reject the latest proposal, has repeatedly rejected Paramount’s efforts to unite Hollywood’s two most famous studios, both of which have their roots in the silent film era. Instead, it has accepted a bid from Netflix, which has achieved a market value of $400 billion by disrupting the foundation of the traditional film industry.
Paramount, which made its first move to buy the famed Hollywood studio in September, said on December 22 that Ellison had agreed to provide an “irrevocable personal guarantee” covering $40.4 billion of equity financing for the WBD bid, which is being led by his son David Ellison.
This move was designed to address WBD’s concern that the Paramount bid was not personally guaranteed by Ellison.
WBD Chairman Samuel Di Piazza told CNBC on Wednesday that the board was “very open” to a deal with Paramount, but that it would have to “put something on the table that is compelling.”
Paramount must now decide whether to continue its current $30 per share bid to WBD shareholders or increase its offer and address the new criticisms outlined by WBD’s board.
WBD shareholders have until January 21 to decide whether to tender their shares under Paramount’s offer.
Paramount, which did not immediately respond to requests for comment, previously said its final offer did not represent the “best and final” offer.
The WBD board highlighted other issues in its shareholder letter, including the potential costs of walking away from the Netflix deal. WBD said if it changes its stance and accepts the Paramount offer it would cost $4.7 billion, including a $2.8 billion termination fee to Netflix.
Netflix said on Wednesday it has submitted a mandatory pre-merger notification with regulators and is now engaging with competition authorities including the US Justice Department and the European Commission.
Netflix co-chief executives Ted Sarandos and Greg Peters said in a statement that “the WBD board fully supports the Netflix merger agreement and continues to recommend it, recognizing it as the superior proposal”. When announcing their merger agreement last month, Netflix and WBD said the deal was expected to close in 12-18 months.
Unlike Netflix, Paramount wants to purchase the company’s legacy television and cable assets such as CNN, TNT, and Discovery Channel. Netflix plans to acquire WBD after spinning off its cable TV business, which is scheduled to happen this year.
WBD informed its shareholders in the letter about the appeal of the spin-off of cable unit, Discovery Global. Comcast tested the waters this week with a similar cable spin-off. Shares of the spin-off, Versant, fell about 23 percent in the first two days of trading.
Both cable groups have faced customer loss due to the increase in cord-cutting and streaming. However, WBD rejected the idea that Versant was a “comparable” company to Discovery Global, which it said in a regulatory filing on Wednesday had “larger scale” and a “strong international presence.”
