The board of directors of Warner Bros. Discovery has spoken about Paramount’s hostile offer, which values the group at $108.4 billion, and the message has been clear: a resounding no to the proposal, while asking shareholders to support the existing agreement with Netflix, according to an official statement from the company. The administrative body of the audiovisual group considers that Paramount’s offer is “insufficient” and that the promised financing entails great risks, since there is no firm commitment on the part of the Ellison family.
In a letter to shareholders, disclosed in a document sent to the US markets regulator, the board claims that Paramount has “consistently misled” Warner Bros. shareholders by claiming that its cash offer of $30 per share was fully guaranteed, or “backed”, by the Ellison family, led by billionaire and Oracle co-founder Larry Ellison. “It is not, and never has been,” the board wrote about guaranteeing Paramount’s offer, noting that it presented “numerous and significant risks.”
Paramount’s bid, led by David Ellison, son of Larry Ellison, is backed by a holding company that manages the Oracle co-founder’s fortune. As a revocable trust fund, assets can be withdrawn at any time, and Warner Bros. could be left out of pocket if that happens, Bloomberg News reported. Warner Bros.’ board said Wednesday that Paramount’s offer includes an equity commitment “for which there is no commitment from the Ellison family” but rather the backing of an “opaque and unknown” Lawrence J. Ellison revocable trust, whose assets and liabilities are not publicly disclosed and are subject to change.
By contrast, Netflix’s offer is backed by a publicly traded company with a market capitalization of more than $400 billion and investment grade debt (the highest rating by rating agencies), Warner’s board noted. Paramount, on the other hand, has a market capitalization of $15 billion and a credit rating “one level above ‘junk,’” Warner Bros. said.
“Although Warner has repeatedly reiterated to you the importance of a full and unconditional financial commitment by the Ellison family, the Ellison family has decided not to support Paramount’s offer,” the Warner Bros. board wrote. “A revocable trust is not a substitute for a guaranteed commitment by a majority shareholder.” Paramount had said the Ellison family trust, which Paramount says contains more than $250 billion in assets, including about 1.16 billion Oracle shares, is more than enough to cover the capital commitment.
Financing structure
The offering was based on a seven-party cross-conditional structure, in which the Ellison Revocable Trust provided only 32% of the required capital commitment, limiting its liabilities to $2.8 billion, Warner Bros. said. Additionally, the fund’s assets could be withdrawn at any time. In this way, the offering is financed with $41 billion in new capital, backed by the Ellison family and RedBird Capital, and $54 billion in debt commitments from Bank of America, Citi and Apollo. Affinity Partners, owned by Jared Kushner, Donald Trump’s son-in-law, has withdrawn from the structure, according to Bloomberg. Affinity’s $200 million contribution to the financing was relatively small, fund sources added, noting that the rivalry of two contenders had complicated the project’s visibility.
The Warner Bros. board also considers Paramount’s offer “inferior” to the merger agreement with Netflix. The offer of $27.75 per share from the giant streaming by the Warner Bros. film and television studios, its catalog and the streaming HBO Max is a binding deal that requires no equity financing and has strong debt commitments, the board believes, according to the report. “The board of Warner Bros. Discovery reiterated that the Netflix merger deal is superior and that our acquisition is in the best interest of shareholders,” its co-CEO Ted Sarandos said in a statement. Warner Bros. shares fell 1.4% to $28.5 in pre-market trading, while Netflix gained 1.5% and Paramount fell 1.8%.
Warner Bros. has not yet set a date for a shareholder vote on the deal, but it is expected to take place sometime in the spring or early summer, its president, Samuel Di Piazza, said in an interview with CNBC.
The decision to bet on the Netflix proposal marks the latest turn in both giants’ race for assets that include the historic Warner Bros. film and television studio and its extensive film and television library, whose portfolio includes classics ranging from Casablanca and Citizen Kane to great contemporary hits like harry potter and Friends and all DC Comics sagas (Batman or Superman). Warner Bros. also owns the streaming service. streaming HBO Max.
Given the board’s rejection, Paramount and its chief executive, David Ellison, will have to decide whether to increase their purchase proposal. Warner shares are trading slightly below $30, suggesting investors expect an increase in supply. Paramount says its bid offers a clearer path to regulatory approval. A spokesman for Warner Bros. Discovery declined to comment.
Warner added that Paramount would also impose what Warner Bros. called “onerous operating restrictions” on the company during the potentially long period between signing and closing, including limits on new content licensing deals.
Likewise, Paramount’s plans to achieve $9 billion in “synergies” between the two studios are “ambitious” from an operational standpoint, the Warner Bros. board said, and would represent a new round of job losses that would “weaken Hollywood, not strengthen it.”
Bid battle
Paramount and Netflix, two giants of the American audiovisual industry, are facing each other in the attempt to acquire the emblematic film and television company Warner Bros Discovery. Warner reached an agreement with Netflix to sell the company for $82.7 billion, including debt, after which Paramount entered the scene with a hostile takeover bid for $108 billion, although they are not comparable prices, since each offer includes a series of different assets.
The battle for Warner Bros. could transform the entertainment industry, regardless of which bidder wins. With the company’s films and series, Netflix would exercise enormous power over the content offered to the public on streaming. Paramount, for its part, aspires to merge two historic Hollywood studios to counter the influence of Netflix, Walt Disney Co. and Amazon.com Inc. The winner of the contest will obtain a great advantage in the war of the streaming by securing a vast library of content that has long been an acquisition target.
Netflix had agreed with Warner’s board to pay $27.75 per share, in a combination of cash and stock, for Warner studios and the streaming service. streaming HBO Max. Paramount, for its part, went directly to shareholders with a hostile bid, offering $30 in cash for the entire company. Paramount’s offer expires on January 8, the date until which the company could decide whether to raise its proposal.
Both deals raise significant competition concerns, something that is underlined by the multimillion-dollar breakup awards both parties have offered. Paramount said it has already applied for regulatory approval in the United States and European regulators, thus shortening the process. Warner Bros. Discovery’s board has taken regulatory risks into account when evaluating the Netflix and Paramount deals, and believes either transaction would gain the necessary approvals, both U.S. and foreign.
Warner also rejects Paramount’s accusations of bias and cited “dozens” of calls and meetings with studio directors and advisers, including four in-person meetings and lunches with CEO David Zaslav and Paramount CEO David Ellison or his father, Larry Ellison.
“Following each offer, we informed Paramount of material deficiencies and offered possible solutions,” the Warner Bros. board wrote. “Despite these comments, Paramount has never submitted a proposal superior to the merger agreement with Netflix.”
Paramount’s bid is also financed by a roster of influential Middle Eastern investors, including Saudi Arabia’s Public Investment Fund and the Qatar Investment Authority, as well as a little-known Abu Dhabi group called L’imad Holding Co. Kushner has strong ties to the Middle East. He founded Affinity in 2021 with financing from sovereign wealth funds in the region.
On the other hand, the Writers Guild of America (WGA) denounced that the operation could violate antitrust laws, and senators such as Elizabeth Warren, Bernie Sanders and Richard Blumenthal have warned the Department of Justice that the new company would have “the ability to increase television prices in a context of inflation.”
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