Warner Bros. Discovery has sharply rejected Paramount's hostile bid, arguing that the $108 billion deal poses significant risks because Larry Ellison's family hasn't put any real money into its bid for the storied Warner, HBO and CNN film studio.
Paramount “has consistently misled WBD shareholders by claiming that the proposed transaction has the 'full support' of the Ellison family,” the Warner Bros. board wrote Wednesday. Discovery in a letter to its shareholders filed with the Securities and Exchange Commission.
“This is not happening and has never happened,” Warner’s board of directors said.
Warner's board of directors voted unanimously to reject Paramount's hostile bid, concluding that it was not in the best interests of shareholders.
What was missing for Warner was a clear statement from Paramount that the Ellison family had agreed to finance the deal. Last week, Paramount told Warner shareholders it would pay them $30 a share — or $78 billion for the entire company. Paramount also said it would absorb Warner's debt, bringing the total deal value to $108 billion.
A Paramount representative was not available for comment Wednesday.
The Warner auction took several unfortunate turns. Last week, Paramount launched a hostile takeover campaign against Warner after losing a bidding war with Netflix. Warner board members on Dec. 4 unanimously approved Netflix's $82.7 billion deal with film and television studios Warner Bros., HBO and HBO Max.
In its letter, Warner's board reiterated its support for Netflix's $27.75 per share offer, saying it was the best deal for shareholders. Warner board members urged investors not to offer their shares to Paramount.
Board members said they were concerned that Paramount's financing looked shaky and the Ellison family's assurances were less than ironclad. Instead, Paramount's proposal contained “gaps, loopholes and restrictions,” Warner said, including troubling clauses such as the documents saying Paramount “reserves the right[d] the right to amend the proposal in any respect.”
Warner's board argued that its shareholders could remain liable.
Netflix touted its winning cash-and-stock offer in a separate letter to Warner shareholders.
“The structure of our transaction is clean and certain, leveraging debt financing from leading institutions,” Netflix co-CEOs Ted Sarandos and Greg Peters wrote. “We have no contingencies, no foreign sovereign wealth funds, no equity collateral or consumer debt. We are a scale company with a market cap of +$400 billion and a strong investment grade balance sheet.”
Paramount CEO David Ellison says his deal beats Netflix's offer by $108 billion.
(Evan Agostini/Evan Agostini/invision/ap)
Paramount Chairman David Ellison has defended Paramount's strength in recent weeks, saying his company's bid for the entire Warner Bros. Discovery, which includes HBO, CNN and film and TV studios Warner Bros., was backed by his wealthy family, led by his father, Oracle co-founder Larry Ellison, one of the richest men in the world.
David Ellison sent a letter to Warner shareholders last week asking for support. The tech heir wrote that his family and RedBird Capital Partners will be strong stewards of Warner's iconic projects, including Batman, Harry Potter, The Wizard of Oz, The Lord of the Rings and HBO's Game of Thrones.
Ellison wrote that Paramount provided “equity commitments to the Ellison family trust, which contains more than $250 billion in assets,” including more than 1 billion shares of Oracle stock.
In filings with regulators, Paramount said that for its share of the deal it planned to seek $24 billion from the sovereign wealth funds representing the royal families of Saudi Arabia, Qatar and Abu Dhabi, as well as $11.8 billion from the Ellison family (which also owns a majority stake in Paramount).
President Trump's son-in-law Jared Kushner's private equity firm Affinity Partners exited Paramount Financial Group this week.
Paramount's offering would also require more than $60 billion in debt financing.
Paramount has made six offers for Warner Bros., and its “latest offer includes a $40.65 billion equity investment for which there is no commitment from the Ellison family,” Warner's board wrote.
“Instead they propose, [shareholders] Rely on an unknown and opaque revocable trust for certainty in financing this important transaction,” the board said, noting that such a trust can always be changed. “A revocable trust is not a substitute for the secured obligation of the controlling shareholder,” the board said in the letter.
During negotiations, Paramount, which trades under the ticker symbol PSKY, failed to provide a firm financial commitment from Larry Ellison, despite Warner bankers telling them it was needed, the board said.
“Despite … its own extensive resources, as well as PSKY's numerous assurances during our strategic review process that such a commitment would be made, the Ellison family has decided not to support PSKY's proposal,” Warner's board wrote.
David Ellison insisted that Paramount's offer of $30 a share was superior to Netflix's winning offer.
Paramount wants to buy all of Warner Bros. Discovery, including its cable channels, while Netflix struck a deal to acquire Warner studios, its sprawling Burbank site, and streaming services HBO and HBO Max.
Warner plans to spin off its linear cable channels, including CNN, HGTV, Cartoon Network and TBS, next year.
Paramount's lawyers argue that Warner tilted the auction in Netflix's favor.
Paramount, which until recently had a warm relationship with President Trump, has long argued that its deal represents a stronger path to regulatory approval. Trump's Justice Department will review any antitrust implications of the deal, and Trump has spoken highly of the Ellisons in the past.
However, Warner's board of directors said Paramount may be presenting too rosy a view.
“The board does not believe that there is a material difference in regulatory risk between the PSKY offering and the Netflix merger,” Warner's board wrote. “The Board, with its regulatory advisors, has carefully considered the federal, state and international regulatory risks associated with both the Netflix merger and the PSKY offering.”
The board noted that Netflix has agreed to pay a record $5.8 billion if its deal does not clear regulatory hurdles.
“We have every confidence that regulators will see this deal for what it is: focused on consumers, innovation, workers, creators, growth and competition,” Netflix's Sarandos and Peters wrote.
Paramount offered a termination fee of $5 billion.
If Warner backs out of its deal with Netflix, it will owe Netflix a breakup fee of $2.8 billion.
The companies expect it will take between a year and 18 months to gain regulatory approval around the world.
Warner also pointed to Paramount's promises to Wall Street to cut the combined companies' costs by $9 billion. Paramount has been in the midst of a $3 billion cut since the Ellison family and RedBird Capital Partners took over the company in August.
Paramount has promised Another $6 billion in cuts if Warner Bros. wins.
“These goals are ambitious both from an operational point of view and would make Hollywood weakernot stronger,” Warner’s board wrote.
