What To Watch For
Warner’s statement noted that: “WBD continues to be of the view that PSKY is a litigious counterparty, which raises concerns regarding the likelihood that the Offer (or any related merger agreement) will be completed on the terms proposed.” Late last month, the New York Post reported that Paramount was formulating a so-called “Defcon-1” strategy to sue Warner if it chose not to accept the deal.
Chief Critics
In a letter to shareholders, Warner Bros. criticized the Paramount deal for relying on an “extraordinary amount of debt financing,” insisting that the purchase would mark the largest leveraged buyout in history. Paramount has a market capitalization of about $14 billion, according to the Warner Bros. board, and would need to finance the deal with about $40 billion in equity and $54 billion in debt. Warner Bros. also claimed Paramount did not guarantee it would pay the $2.8 billion termination fee it would incur should its deal with Netflix fall through, as well as an additional $1.5 billion fee for “failing to complete our debt exchange” and $350 million in interest. The letter also criticized the “operating restrictions” the Paramount deal would place on Warner Bros.—specifically, preventing the company from going through with its plans to spin off its cable television assets into a separate company. Should the deal fall through, Warner Bros. said its shareholders would be left with a company that was “restricted from pursuing its key initiatives for up to 18 months.”