The board of Warner Bros has rejected a $108 billion “inadequate” hostile bid from Paramount Skydance, in spite of a personal pledge from Larry Ellison, one of the world’s richest men, to guarantee some of the financing for the deal.
Warner said the $83 billion offer from Netflix for its streaming and studios businesses remained superior to Paramount’s bid for the entirety of its business, including its legacy television networks such as CNN.
In a letter to shareholders, the board described the Paramount bid as “in effect … would be the largest leveraged buyout in history”, which would see the $13.4 billion media group take on an additional $54 billion from Bank of America, Citigroup and Apollo.
“This aggressive transaction structure poses materially more risk for WBD and its shareholders when compared to the conventional structure of the Netflix merger,” the board wrote.
Days before Christmas, Ellison, the co-founder of Oracle and father of David Ellison, Paramount’s chief executive and chairman, agreed to provide “an irrevocable personal guarantee” for the $40.4 billion in equity financing and any damage claims against Paramount.
The move was designed to address concerns raised by the board of Warner Bros Discovery, which has rejected eight approaches from Paramount since September.
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The Warner board, which has voted unanimously to reject the Paramount officer, highlighted an additional $4.7 billion in costs that it said it would incur by accepting the Paramount offer, including paying Netflix a $2.8 billion termination fee.
It also insisted that the Netflix offer would allow shareholders to continue to “receive value” by retaining exposure to Discovery Global, which is set to be spun off into a separately listed vehicle.
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However, the decision to rebuff Paramount’s latest advance has infuriated Pentwater Capital, Warner’s seventh largest shareholder, which told the board in a letter on Wednesday that this was an “error”.
“By choosing not to engage with Paramount, the board is choosing to not inquire about what improvements Paramount is willing to make to its offer,” Matthew C Halbower, Pentwater chief executive, said in the letter.
David Ellison, who has accused Warner of refusing to properly engage with its offers, must now consider whether to raise the value of Paramount’s bid, which the media group previously said was not its “best and final”.
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Samuel Di Piazza Jr, Warner’s chairman, told CNBC that there could be a “paths” to a deal with Paramount, but added that the group had “to put something on the table that is compelling and is superior”.
It took its offer directly to Warner shareholders on December 8 by launching a tender offer for the shares, which expires on January 21, after Warner accepted Netflix’s stock and share offer for its studios and streaming businesses on December 5.
The merger is expected to take between 12 and 18 months to close and will need to be cleared by federal competition regulators. Netflix’s leading position in streaming is likely to be heavily scrutinised.
Ted Sarandos and Greg Peters, co-chief executives of Netflix, which has a market value of $414 billion, said the Warner board had recognised its bid “as the superior proposal that will deliver the greatest value to its stockholders, as well as consumers, creators and the broader entertainment industry”.
Under the terms of the Paramount offer, Warner shareholders would be paid $30 a share for the entirety of the business, including its global television networks.
The acquisition of Warner Bros would bring with it some of the most prized franchises in film and television, including Harry Potter, Game of Thrones and DC Studios, as well as a studio that traces its roots back to the silent cinema era.