Warner Bros. Discovery has sharply rejected Paramount\u2019s hostile offer, alleging the $108-billion deal carries substantial risks because the Larry Ellison family has failed to put real money behind its bid for Warner\u2019s legendary movie studio, HBO and CNN.<\/p>\n
Paramount \u201chas consistently misled WBD shareholders that its proposed transaction has a \u2018full backstop\u2019 from the Ellison family,\u201d Warner Bros. Discovery\u2019s board wrote Wednesday in a letter to its shareholders filed with the Securities & Exchange Commission.<\/p>\n
\u201cIt does not, and never has,\u201d the Warner board said.<\/p>\n
Warner\u2019s board voted unanimously to reject Paramount\u2019s hostile bid, concluding it was not in the best interests of shareholders.<\/p>\n
For Warner, what was missing was a clear declaration from Paramount that the Ellison family had agreed to commit funding for the deal. Paramount last week told Warner stockholders that it would pay them $30 a share \u2014 or $78 billion for the entire company. Paramount also has said it would absorb Warner\u2019s debt, making the overall deal valued at $108 billion.<\/p>\n
Paramount disputed Warner\u2019s contention that the Ellison family had not come through with needed financial guarantees.<\/p>\n
\u201cWe remain committed to bringing together two iconic Hollywood studios to create a unique global entertainment leader,\u201d Paramount Chairman and Chief Executive David Ellison said Wednesday, reaffirming Paramount\u2019s strategy to take its case directly to Warner shareholders. <\/p>\n
\u201cWe will continue to move forward to deliver this transaction, which is in the best interest of WBD shareholders, consumers, and the creative industries,\u201d Ellison said.<\/p>\n
The Warner auction has taken several nasty turns since Warner board members on Dec. 4 had unanimously approved Netflix\u2019s $82.7-billion deal for the Warner Bros. film and television studios, HBO and HBO Max.<\/p>\n
In its letter, the Warner board reaffirmed its support for Netflix\u2019s $27.75 a share proposal, saying it represented the best deal for shareholders. Warner board members urged investors not to tender their shares to Paramount.<\/p>\n
Netflix shares ended the trading day Wednesday up about a quarter of a percent at $94.79. Warner Bros. Discovery closed at $28.21. Paramount shares ended the day at $13.10.<\/p>\n
Board members said they were concerned that Paramount\u2019s financing appeared shaky and the Ellison family\u2019s assurances were far from ironclad. Instead, Paramount\u2019s proposal contained \u201cgaps, loopholes and limitations,\u201d Warner said, including troubling caveats, such as saying in documents that Paramount \u201creserve[d] the right to amend the offer in any respect.\u201d <\/p>\n
The Warner board argued that its shareholders could be left holding the bag.<\/p>\n
Netflix touted its winning cash and stock bid in a separate letter to Warner shareholders.<\/p>\n
\u201cOur deal structure is clean and certain, with committed debt financing from leading institutions,\u201d Netflix Co-Chief Executives Ted Sarandos and Greg Peters wrote. \u201cThere are no contingencies, no foreign sovereign wealth funds, and no stock collateral or personal loans. We are a scaled company with a +$400 billion market cap and a strong investment grade balance sheet.\u201d<\/p>\n
<\/p>\n
Paramount Chief Executive David Ellison has argued his $108-billion deal is superior to Netflix\u2019s proposal. <\/p>\n
(Evan Agostini \/ Invision \/ AP)<\/p>\n
David Ellison has championed Paramount\u2019s strength in recent weeks saying his company\u2019s bid for all of Warner Bros. Discovery, which includes HBO, CNN and the Warner Bros. film and television studios, was backed by his wealthy family, headed by his father, Oracle co-founder Larry Ellison, one of the world\u2019s richest men.<\/p>\n
\u201cOur proposal clearly offers WBD shareholders superior value and certainty, a clear path to close, and does not leave them with a heavily indebted sub-scale linear [cable television] business,\u201d Ellison said on Wednesday.<\/p>\n
He sent a letter last week to Warner shareholders, asking for their support. The tech scion wrote his family and RedBird Capital Partners would be strong stewards of Warner\u2019s iconic properties, which include Batman, Harry Potter, \u201cThe Wizard of Oz,\u201d \u201cThe Lord of the Rings,\u201d and HBO\u2019s \u201cGame of Thrones.\u201d<\/p>\n
Ellison wrote that Paramount delivered \u201can equity commitment from the Ellison family trust, which contains over $250 billion of assets,\u201d including more than 1 billion Oracle shares. Notably, the trust has been a counterparty in other public company transactions including for Twitter and Electronic Arts.<\/p>\n
In regulatory filings, Paramount has disclosed that, for the equity portion of the deal, it planned to rely on $24 billion from 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 holds the controlling shares in Paramount). <\/p>\n
This week, President Trump\u2019s son-in-law Jared Kushner\u2019s Affinity Partners private equity firm pulled out of Paramount\u2019s financing group. <\/p>\n
Paramount\u2019s bid would also need more than $60 billion in debt financing.<\/p>\n
Paramount has made six offers for Warner Bros., and its \u201cmost recent proposal includes a $40.65 billion equity commitment, for which there is no Ellison family commitment of any kind,\u201d the Warner board wrote. <\/p>\n
\u201cInstead, they propose that [shareholders] rely on an unknown and opaque revocable trust for the certainty of this crucial deal funding,\u201d the board said, noting that such a trust could always be changed. \u201cA revocable trust is no replacement for a secured commitment by a controlling stockholder,\u201d the board\u2019s letter said. <\/p>\n
Throughout the negotiations, Paramount, which trades under the PSKY ticker, failed to present a solid financing commitment from Larry Ellison \u2014 despite Warner\u2019s bankers telling them that one was necessary, the board said.<\/p>\n
\u201cDespite … their own ample resources, as well as multiple assurances by PSKY during our strategic review process that such a commitment was forthcoming \u2013 the Ellison family has chosen not to backstop the PSKY offer,\u201d Warner\u2019s board wrote. <\/p>\n
Paramount disputed the characterization, saying it was Warner Bros. Discovery that sought to \u201cmislead its shareholders into believing this is a complicated question about legal documents.\u201d<\/p>\n
\u201cIn reality, it is all quite simple: $30 in cash fully backstopped by a well-capitalized trust (in existence for approximately 40 years) of one of the most well-known founders and entrepreneurs in the world, Larry Ellison,\u201d Paramount said in a statement. \u201cWhat is glaring is the absolute resistance on the part of WBD to even engage in a single negotiating session with Paramount or its advisors, and a refusal even to provide a mark-up of any transaction document.\u201d<\/p>\n
David Ellison has insisted Paramount\u2019s offer of $30 a share was superior to Netflix\u2019s winning bid. <\/p>\n
Warner plans to spin off its linear cable channels, including CNN, HGTV, Cartoon Network and TBS, next year. <\/p>\n
\u201cWBD\u2019s formal rejection of Paramount\u2019s offer changes nothing,\u201d Mike Proulx, a Forrester research analyst, said in a statement. \u201cThe ultimate decision still rests with WBD\u2019s shareholders and that vote is months away. What\u2019s unfolding now feels like a real-life, far more consequential episode of HBO\u2019s Succession.<\/p>\n
\u201cAnd if you think you know how this plot ends, think again,\u201d Proulx said.<\/p>\n
Paramount\u2019s lawyers have argued that Warner tipped the auction to favor Netflix. <\/p>\n
Paramount, which until recently enjoyed warm relations with President Trump, has long argued that its deal represents a more certain path to gain regulatory approvals. Trump\u2019s Department of Justice would consider any anti-trust ramifications of the deal, and in the past, Trump has spoken highly of the Ellisons.<\/p>\n
However, Warner\u2019s board argued that Paramount might be providing too rosy a view. <\/p>\n
\u201cThe Board does not believe there is a material difference in regulatory risk between the PSKY offer and the Netflix merger,\u201d the Warner board wrote. \u201cThe Board carefully considered the federal, state, and international regulatory risks for both the Netflix merger and the PSKY offer with its regulatory advisors.\u201d<\/p>\n
The board noted that Netflix agreed to pay a record $5.8 billion if its deal fails to clear the regulatory hurdles. <\/p>\n
\u201cThis deal is a win for the entire industry,\u201d Peters said during an appearance on CNBC. \u201cIt brings an important, iconic studio into a sustainable model that means more investment, that means more opportunities, more American jobs, more union jobs, more production staying in the United States.\u201d<\/p>\n
Paramount has offered a $5 billion termination fee.<\/p>\n
Should Warner abandon the transaction with Netflix, it would owe Netflix a $2.8 billion break-up fee. <\/p>\n
The companies anticipate that it will take a year to 18 months to secure the blessing of regulators around the world.<\/p>\n
Warner also pointed to Paramount\u2019s promises to Wall Street that it would shave $9 billion in costs from the combined companies. Paramount is in the process of making $3 billion in cuts since the Ellison family and RedBird Capital Partners took the helm of the company in August. <\/p>\n
Paramount has promised another $6 billion in cuts should it win Warner Bros<\/a>.<\/p>\n