The latest? Warner Bros Discovery board recommends that shareholders reject Paramount’s offer.
The high stakes drama for streaming and film industry dominance took another turn Wednesday as the Warner Bros Discovery (NASDAQ:WBD) board recommended that shareholders reject the Paramount Skydance (NASDAQ:PSKY) hostile takeover bid.
Last week, Paramount appealed directly to Warner Bros Discovery shareholders with a $30.00 per share bid for the entire company. It came after the WBD board had accepted an offer from Netflix to buy just the Warner Bros properties – not Discovery, which would be spun off, as planned — for $27.75 per share.
In reviewing the Paramount offer, the WBD board stood by its original decision to reject the Paramount offer, recommending that shareholders accept the Netflix deal.
“Following a careful evaluation of Paramount’s recently launched tender offer, the Board concluded that the offer’s value is inadequate, with significant risks and costs imposed on our shareholders,” Samuel Di Piazza, Jr., chair of the Warner Bros. Discovery board, said. “This offer once again fails to address key concerns that we have consistently communicated to Paramount throughout our extensive engagement and review of their six previous proposals.”
Di Piazza said the agreement with Netflix is “superior” offering “more certain value for our shareholders.”
Paramount offer is “illusory”
The hostile takeover offer to shareholders is the same offer that WBD board rejected the first time around in favor of the Netflix proposal. In a letter to shareholders posted Wednesday, the WBD board called the Paramount offer an “inferior” proposal.
The board cited several reasons why it recommends the Netflix offer. Among them, it includes $4.50 per share in Netflix stock, along with $23.25 per share in cash.
Also, the board said that Paramount has “consistently misled” that its offer has a “full backstop” from the Ellison family. “It does not, and never has,” the letter says. The Ellison family refers to David Ellison, Paramount Skydance CEO and his father Larry Ellison, the chairman and CEO of Oracle.
“Instead, they propose that you rely on an unknown and opaque revocable trust for the certainty of this crucial deal funding,” the letter says, adding that a revocable trust is no replacement for a secured commitment.
The board added that the Netflix deal is “a binding agreement with enforceable commitments, with no need for any equity financing and robust debt commitments. The Netflix merger is fully backed by a public company with a market cap in excess of $400 billion with an investment grade balance sheet.”
In addition, WBD called the Paramount offer “illusory” saying the “offer can be terminated or amended by PSKY at any time prior to its completion; it is not the same thing as a binding merger agreement.”
The letter also noted that Netflix offered a $5.8 billion breakup fee if the deal is rejected by regulators, adding that the regulatory risk levels between the two deals is not material. The board also noted that if the Netflix deal is terminated, the company would have to pay a $2.8 billion termination fee.
Throwing perhaps more doubt on the Paramount offer is the announcement Tuesday that Affinity Partners, run by Jared Kushner, is no longer a financial backer of the Paramount bid, according to CNBC and other outlets.
What do investors think?
Warner Bros Discovery shareholders have until January 8 to decide whether or not to accept the Paramount offer or stay with the Netflix agreement. Of course, there is always the possibility that Paramount could make another higher offer, which could start a new bidding war, as Netflix would have an opportunity to counter.
If youʻre wondering what investors think, Netflix stock was up about 2% on Wednesday, following the WBD board’s rejection of the Paramount offer. Paramount Skydance stock was down about 4% Wednesday, suggesting investors may now be less bullish on the hostile takeover.
It is also worth noting that WBD stock is down about 1% to around $28.50, suggesting that investors may be selling because they don’t see the $30 per share bid being accepted.
There are almost certainly going to more twists in this tale before the January 8 deadline for shareholders to make a decision.
