WBD board rejects revised Paramount bid as chair appears to invite improved offer
Warner Bros Discovery (WBD)’s board has called on shareholders to reject Paramount’s amended takeover bid in favour Netflix’s signed agreement – but board chair Samuel A Di Piazza Jr has apparently left the door open to an improved offer.
The company’s board yesterday said Paramount’s new offer of US$30 per share for all of WBD was still “inferior” to Netflix’s agreement of US$27.75 per share for WBD’s studio and streaming assets.
It called Paramount’s offer “not superior or even comparable” to Netflix’s, again stating that the David Ellison-led company had “failed to submit the best proposal for WBD shareholders despite clear direction from WBD on both the deficiencies and potential solutions.”
“Paramount’s offer continues to provide insufficient value, including terms such as an extraordinary amount of debt financing that create risks to close and lack of protections for our shareholders if a transaction is not completed,” said Di Piazza Jr.
“Our binding agreement with Netflix will offer superior value at greater levels of certainty, without the significant risks and costs Paramount’s offer would impose on our shareholders.”
After WBD accepted Netflix’s US$82.7bn deal, Paramount took its offer directly to WBD shareholders with a hostile bid valuing the entirety of WBD at US$108.4bn.
In mid-December, WBD’s board gave a scathing response, saying Paramount’s “illusory” offer was littered with misleading claims about the credibility of the financing plan and that its cost-savings targets would “make Hollywood weaker, not stronger.”
Less than a week later, Paramount amended its offer with an agreement that Larry Ellison would provide an “irrevocable personal guarantee” for a portion of the equity financing.
However, WBD’s board is holding firm in its stance that Netflix’s deal is much better. On Wednesday, it said the “extraordinary amount” of debt financing in the Paramount bid increases the likelihood that it would not be able to close a deal.
“Paramount is a company with a US$14bn market capitalisation attempting an acquisition requiring US$94.65bn of debt and equity financing, nearly seven times its total market capitalisation,” said WBD’s board.
“To effect the transaction, it intends to incur an extraordinary amount of incremental debt – more than US$50bn – through arrangements with multiple financing partners.”
It also pointed to Paramount’s “junk” credit rating, versus Netflix’s “investment-grade balance sheet” and US$400bn market cap.
While both WBD’s rebuttals have been definitive, Di Piazza Jr appeared to invite Paramount to continue its pursuit in an interview on CNBC business show Squawk Box.
Speaking to CNBC’s David Faber, Di Piazzi Jr reiterated the board’s rationale for recommending that shareholders reject Paramount’s amended offer. However, he suggested that WBD is open to engaging with Paramount if they “put something on the table that is compelling and is superior.”
He denied WBD was fundamentally opposed to engaging with Paramount, stating the board would be “very open to do a transaction” with the company if certain key issues were addressed.
Paramount previously accused WBD’s board of running a “murky” sales process that was unfairly tilted in Netflix’s favour from the beginning – something WBD has denied.
There is some evidence WBD shareholders are interested in Paramount’s offer. According to CNBC, Pentwater Capital Management, which is WBD’s seventh-largest shareholder, this week sent a letter to the WBD board arguing it had made an “error” by not engaging with Paramount’s amended proposal. Paramount has given WBD shareholders until January 21 to tender their shares.
On Wednesday, Netflix released its own statement welcoming the WBD board’s recommendation to reject Paramount’s updated offer. It also said it is “engaging” with the US Department of Justice and the European Commission, which will both be reviewing the deal on antitrust grounds.
