Paramount\u2019s campaign to acquire Warner Bros. Discovery was dealt another blow Wednesday after Warner\u2019s board rejected a revised bid from the company.<\/p>\n
The board cited the enormous debt load that Paramount would need to finance its proposed $108-billion takeover.<\/p>\n
Warner\u2019s board this week unanimously voted against Paramount\u2019s most recent hostile offer \u2014 despite tech billionaire Larry Ellison agreeing in late December to personally guarantee the equity portion of Paramount\u2019s bid. Members were not swayed, concluding the bid backed by Ellison and Middle Eastern royal families was not in the best interest of the company or its shareholders. <\/p>\n
Warner\u2019s board pointed to its signed agreement with Netflix, saying the streaming giant\u2019s offer to buy the Warner studios and HBO was solid.<\/p>\n
The move marked the sixth time Warner\u2019s board has said no to Paramount since Ellison\u2019s son, Paramount Chief Executive David Ellison, first expressed interest in buying the larger entertainment company in September.<\/p>\n
In a Wednesday letter to investors, Warner board members wrote that Paramount Skydance has a market value of $14 billion. However, the firm is \u201cattempting an acquisition requiring $94.65 billion of [debt and equity] financing, nearly seven times its total market capitalization.\u201d <\/p>\n
The structure of Paramount\u2019s proposal was akin to a leveraged buyout, Warner said, adding that if Paramount was to pull it off, the deal would rank as the largest leveraged buyout in U.S. history.<\/p>\n
\u201cThe extraordinary amount of debt financing as well as other terms of the PSKY offer heighten the risk of failure to close, particularly when compared to the certainty of the Netflix merger,\u201d the Warner board said, reiterating a stance that its shareholders should stick to its preferred alternative to sell much of the company to Netflix.<\/p>\n
The move puts pressure on Paramount to shore up its financing or boost its cash offer above $30 a share. <\/p>\n
However, raising its bid without increasing the equity component would only add to the amount of debt that Paramount would need to buy HBO, CNN, TBS, Animal Planet and the Burbank-based Warner Bros. movie and television studios. <\/p>\n
Paramount representatives were not immediately available for comment.<\/p>\n
\u201cThere is still a path for Paramount to outbid Netflix with a substantially higher bid, but it will require an overhaul of their current bid,\u201d Lightshed Partners media analyst Rich Greenfield wrote in a Wednesday note to investors. Paramount would need \u201ca dramatic increase in the cash invested from the Ellison family and\/or their friends and financing partners.\u201d<\/p>\n
Warner Bros. Discovery\u2019s shares held steady around $28.55. Paramount Skydance ticked down less than 1% to $12.44. <\/p>\n
Netflix has fallen 17% to about $90 a share since early December, when it submitted its winning bid.<\/p>\n
The jostling comes a month after Warner\u2019s board unanimously agreed to sell much of the company to Netflix for $72 billion<\/a>. The Warner board on Wednesday reaffirmed its support for the Netflix deal, which would hand a treasured Hollywood collection, including HBO, DC Comics and the Warner Bros. film studio, to the streaming giant. Netflix has offered $27.75 a share.<\/p>\n \u201cBy joining forces, we will offer audiences even more of the series and films they love \u2014 at home and in theaters \u2014 expand opportunities for creators, and help foster a dynamic, competitive, and thriving entertainment industry,\u201d Netflix co-Chief Executives Ted Sarandos and Greg Peters said in a joint statement Wednesday. <\/p>\n After Warner struck the deal with Netflix on Dec. 4, Paramount turned hostile \u2014 making its appeal directly to Warner shareholders<\/a>.<\/p>\n Paramount has asked Warner investors to sell their shares to Paramount, setting a Jan. 21 deadline for the tender offer. <\/p>\n Warner again recommended its shareholders disregard Paramount\u2019s overtures.<\/p>\n Warner Bros.\u2019 sale comes amid widespread retrenchment in the entertainment industry and could lead to further industry downsizing.<\/p>\n The Ellison family acquired Paramount\u2019s controlling stake in August and quickly set out to place big bets, including striking a $7.7-billion deal for UFC fights. The company, which owns the CBS network, also cut more than 2,000 jobs.<\/p>\n Warner Bros. Discovery was formed in 2022 following phone giant AT&T\u2019s sale of the company, then known as WarnerMedia, to the smaller cable programming company, Discovery. <\/p>\n To finance that $43-billion acquisition, Discovery took on considerable debt. Its leadership, including Chief Executive David Zaslav, spent nearly three years cutting staff and pulling the plug on projects to pay down debt.<\/p>\n Paramount would need to take on even more debt \u2014 more than $60 billion \u2014 to buy all of Warner Bros. Discovery, Warner said.<\/p>\n Warner has argued that it would incur nearly $5 billion in costs if it were to terminate its Netflix deal. The amount includes a $2.8-billion breakup fee that Warner would have to fork over to Netflix. Paramount hasn\u2019t agreed to cover that amount. <\/p>\n Warner also has groused that other terms in Paramount\u2019s proposal were problematic, making it difficult to refinance some of its debt while the transaction was pending. <\/p>\n Warner leaders say their shareholders should see greater value if the company is able to move forward with its planned spinoff of its cable channels, including CNN, into a separate company called Discovery Global later this year. That step is needed to set the stage for the Netflix transaction because the streaming giant has agreed to buy only the Warner Bros. film and television studios, HBO and the HBO Max streaming platform.<\/p>\n However, this month\u2019s debut of Versant<\/a>, comprising CNBC, MS NOW and other former Comcast channels, has clouded that forecast. During its first three days of trading, Versant stock has fallen more than 20%.<\/p>\n Warner\u2019s board rebuffed three Paramount proposals before the board opened the bidding to other companies<\/a> in late October. <\/p>\n Board members also rejected Paramount\u2019s Dec. 4 all-cash offer of $30 a share. Two weeks later, it dismissed Paramount\u2019s initial hostile proposal.<\/p>\n At the time, Warner registered its displeasure over the lack of clarity around Larry Ellison\u2019s financial commitment to Paramount\u2019s bid. Days later, Ellison agreed to personally guarantee $40.4 billion in equity financing that Paramount needs. <\/p>\n