Advice Warner Bros. Discovery officially rejected David EllisonThe company's hostile offer of $30 per share told shareholders it remains “underperforming” the Netflix deal and poses “numerous material risks and costs to WBD.”
With the official's refusal, Paramount WBD shareholders will need to be persuaded to tender their shares at that price or offer a higher price than the $108 billion offer, which would change the outcome of the deal.
“After carefully evaluating Paramount's recently announced tender offer, the Board of Directors has determined that the price of the offering is inadequate because it imposes significant risks and costs on our stockholders,” Samuel A. DiPiazza Jr., chairman of Warner Bros., said in a statement. Discovery. “This proposal once again fails to address the key concerns that we have consistently communicated to Paramount throughout our extensive engagement and consideration of their six previous proposals. We are confident that our merger with Netflix represents superior, more robust value for our shareholders, and we look forward to realizing the compelling benefits of our combination.”
“Getting a deal done is great, but getting a deal done is even better,” Di Piazza said on CNBC Wednesday morning after the WBD decision was made public.
The move was expected, as the offer was actually the same one Paramount presented to WBD on December 4 before accepting Netflix's offer. WBD had concerns about foreign funding for the deal and whether Oracle founder Ellison would fully support the deal, and Wednesday's filing underscored those concerns.
WBD said support from the Larry Ellison Revocable Trust was insufficient because assets and liabilities were not disclosed and because assets within the trust could be moved or changed. The WBD board in its statement also suggested that Middle East sovereign wealth funds would bear the risk, with Saudi Arabia's Public Investment Fund contributing $10 billion, Abu Dhabi $7 billion and the Qatar Investment Authority $7 billion.
“He underwrote it through a last-minute irrevocable trust, and frankly, it wasn't as good as an investment-grade company that purported to be great value and a great answer to our concerns about what it took to get the job done,” Di Piazza said on CNBC. “I, as well as the board of directors, have the utmost respect for the Ellison family and Paramount; they simply did not live up to these expectations.”
Fears that Tencent would contribute more than $1 billion led Paramount to exclude the Chinese tech company from its latest offering (Jared Kushner's Affinity Partners contributed $200 million, although that fund has pulled out of the consortium).
WBD also said it does not believe there is a significant difference from a regulatory perspective between the Netflix and Paramount deals.
The board also cited a Dec. 3 letter from Paramount's attorneys at Quinn Emanuel, which said the letter “suggests a highly contentious position rather than a constructive attempt to reach a negotiated agreement in the best interests of WBD shareholders.” The letter to Quinn Emanuel should not have been sent, it was “unhelpful” and was a “mistake.”
So what's happening now? Sources say Ellison and the Paramount team were waiting for WBD's reaction before deciding their next move. If Paramount comes back with a higher bid, Netflix will have a chance to match it or respond with its own counter, effectively starting a new bidding war.
In its latest call to shareholders on Wednesday, Netflix said its agreement “is the right deal with the right partner at the right time.”
“Warner Bros. Board” Discovery has confirmed that Netflix's merger agreement is excellent and that our acquisition is in the best interests of shareholders,” said Ted Sarandos, co-CEO of Netflix. “This was a competitive process that delivered the best results for consumers, creators, shareholders and the entertainment industry as a whole. Netflix and Warner Bros. complement each other, and we are excited to combine our strengths with their theatrical film division, world-class television studio and the iconic HBO brand, which will continue to focus on prestige television. We are also fully committed to releasing Warner Bros. films in traditional window theaters so that audiences around the world can experience them on the big screen.”
Ellison has already made it clear that he is ready to rise above $30 per share. in a text message General Director of WBD David Zaslav just hours before the Netflix deal was finalized.
“Please note that we did not include the words ‘best and final’ in our submission,” Ellison wrote.
That text message and regulators' confidence were likely the focus of investors' attention as Ellison and some of his top deputies briefed Wall Street shareholders on the company's prospects last week during a UBS conference in New York.
One of the participants in those meetings said Hollywood ReportThey said they were under the impression that Ellison was willing to go even higher, and they wondered whether Netflix had the courage to match, given the trajectory of its share price this week after announcing the $83 billion deal.
Indeed, Paramount's all-cash offer is attractive to some large shareholders, so if the offer is raised, there is a possibility that Wall Street could increase pressure on WBD to reconsider its decision.
You don't have to go back far to see where this will lead: Disney's acquisition of Fox saw a similar battle, with Comcast outbidding Disney, but Disney ultimately prevailing after months of back-and-forth.
Ellison will likely respond with a higher bid, but will Netflix continue to fight? Or will he step back and resign himself to becoming king of streaming, with an extra $2.8 billion to help?
“I don't want to speculate on what's going to happen next,” Netflix co-CEO Greg Peters told CNBC on Wednesday. “We're very pleased to have reached a pretty good deal. And I think the Warner Bros. Board of Directors.
Or, as WBD CEO David Zaslav told employees in an email Wednesday: “You may ask: Where does this leave us? We still have a signed transaction agreement with Netflix and are working together to close the transaction, subject to regulatory approval and other closing conditions.”
The chief executive added: “The regulatory review process has already begun.”
Although Peters told CNBC that if the price of WBD rises, the company will be “dispassionate” when it comes to determining what to do next.
“We'll see what happens,” he said.
