Warner Bros. Discovery still sticks Netflix.
Even after David Ellison Paramount submitted a revised tender proposal For the company, on December 22, with Larry Ellison personally pledging his full support for the deal, WBD's board of directors issued a letter Wednesday morning rejecting the new offer and sticking to its signed agreement with Netflix.
The revised proposal also led Paramount to increase its termination fee to $5.8 billion, matching Netflix, and extending the tender period until the end of January. The company kept the offer price at $30 per share, all in cash.
But WBD's board said the changes weren't enough to convince him to change his mind.
“Your board has unanimously determined that PSKY's amended offer remains inadequate, particularly given the insufficient value it may provide, the lack of confidence in PSKY's ability to complete the offer, and the risks and costs that WBD shareholders will bear if PSKY is unable to complete the offer,” WBD's board wrote.
In documentation attached to the letter, WBD called Paramount's revised offer, even with Ellison's new support mechanism, its “largest LBO.” [leveraged buyout] in history” and that such a structure poses risks to this proposal.
“Changes in the results of operations or financial condition of the target or acquirer, as well as changes in industry or financing conditions, could jeopardize these financing arrangements,” the board wrote. “Many previous large LBOs indicate that acquirers or their sources of equity and/or debt financing can and do seek to assert failure to satisfy closing conditions in order to terminate the transaction or renegotiate the terms of the transaction. This aggressive transaction structure poses a substantially greater risk to WBD and its shareholders than [conventional structure of the] Netflix merger.”
And while Paramount increased its termination fee, WBD said that because it would have to pay Netflix $2.8 billion, pay additional interest on the debt and pay a $1.5 billion fee for failing to complete the debt swap, Paramount's net fee would be only $1.1 billion.
WBD also noted Charles Gasparino's report in New York Postwhich alleged that Paramount was preparing a “DEFCON 1” lawsuit if WBD did not accept the proposed deal.
“WBD remains of the view that PSKY is a contested counterparty, which raises concerns regarding the likelihood that the Offering (or any related merger agreement) will be consummated on the terms proposed,” the company wrote in a statement.
Ellison and Paramount still believe their all-cash offer compares favorably with the more complex Netflix deal, which includes cash, Netflix shares and the plug-in Discovery Global, which WBD hopes to complete its spin-off under the Netflix agreement.
The performance of Versant shares (down double digits), which officially split from Comcast earlier this week, lends more credence to Paramount's claims that Discovery should be valued closer to $1 per share rather than the $3 to $5 per share that others have bet on it, although WBD clearly disagrees.
“While PSKY continues to point to Comcast's Versant as a comparable public company, Discovery Global's business has greater scale and profitability, with a geographically diversified footprint and a strong international presence,” WBD said in a statement.
“Paramount has repeatedly demonstrated its commitment to acquiring WBD. Our $30 per share, fully cash-funded offer was made on December 4 and continues to be the best option to maximize value for WBD shareholders,” David Ellison said in a statement announcing the revised offer last month. “With our commitment to investment and growth, our acquisition will be beneficial to all of WBD's stakeholders as it will be a catalyst for increased content production, increased theatrical production and expanded consumer choice. We expect the WBD Board of Directors to take the necessary steps to ensure this transaction enhances value and preserves and strengthens an iconic Hollywood treasure for the future.”
