Paramount CEO Takes Legal Action Against Warner Bros. Discovery
Paramount CEO David Ellison has escalated his fight against the Netflix acquisition of Warner Bros. Discovery. He filed a lawsuit in Delaware and sent another letter to shareholders. Ellison claims Warner Bros. Discovery failed to provide critical financial disclosures. This lack of information prevents investors from fairly evaluating Paramount's competing all-cash offer.
Lawsuit Filed in Delaware Court
On January 12, Paramount filed a lawsuit in the Delaware Chancery Court. The company demands that Warner Bros. Discovery disclose how it valued the Netflix transaction. Ellison argues that Paramount's $30 per share all-cash bid is financially superior to Netflix's offer. However, Warner Bros. Discovery has withheld key information about the deal.
"Warner Bros. Discovery has provided increasingly novel reasons for avoiding a transaction with Paramount," wrote Ellison in his letter. "What it has never said, because it cannot, is that the Netflix transaction is financially superior to our actual offer."
Ellison further added that Warner Bros. Discovery failed to explain how debt adjustments work in the Netflix deal. The company also did not clarify the basis for its 'risk adjustment' of Paramount's proposal.
Board Rejection Fuels Criticism
Last week, Warner Bros. Discovery's board rejected Paramount's latest bid. They cited concerns that the deal carried too much risk of collapsing. This rejection has intensified Ellison's criticism. He believes shareholders are being denied transparency when evaluating competing offers.
In his detailed letter to shareholders, Ellison outlined Paramount's position. He explained that Paramount started this process about four months ago with a private offer. This offer came at a significant premium to Warner Bros. Discovery's $12.54 share price. The pursuit culminated in the $30 per share all-cash, fully financed proposal.
Ellison stated that when Paramount learned of the Netflix transaction terms, they found them inferior. The terms were worse both financially and from the standpoint of timing and certainty of closing. This discovery prompted Paramount to bring their offer directly to shareholders through a tender offer.
Paramount's Commitment and Next Steps
Paramount remains committed to seeing their tender offer through. Ellison acknowledged that unless the Warner Bros. Discovery board decides to engage with them under the Netflix merger agreement, this will likely come down to a shareholder vote.
Paramount plans to take several actions to ensure shareholders get the final decision. The company will nominate a slate of directors at Warner Bros. Discovery's upcoming annual meeting. These directors will exercise Warner Bros. Discovery's right under the Netflix Agreement to engage on Paramount's offer. Paramount will also propose an amendment to Warner Bros. Discovery's bylaws. This amendment would require shareholder approval for any separation of Global Networks.
If Warner Bros. Discovery calls a special meeting to vote on the Netflix Agreement, Paramount will solicit proxies against such approval. These actions, combined with the tender offer, aim to give shareholders the ultimate choice between offers.
Financial Disclosure Concerns
Ellison emphasized that Warner Bros. Discovery shareholders need proper financial disclosure to make informed investment decisions. He pointed out that Delaware law consistently requires such information to be provided to shareholders. Paramount filed suit in Delaware Chancery Court to ask the court to direct Warner Bros. Discovery to provide this information.
The lawsuit seeks disclosure about how Warner Bros. Discovery valued the Global Networks stub equity. It also demands information about how the company valued the overall Netflix transaction. Additionally, Paramount wants details on how the purchase price reduction for debt works in the Netflix transaction. The basis for Warner Bros. Discovery's "risk adjustment" of Paramount's $30 per share all-cash offer remains unclear.
Ellison expressed perplexity at Warner Bros. Discovery's lack of response to Paramount's December 4th offer. The company never attempted to clarify or negotiate any terms in that proposal. There were few actual board meetings in the period leading up to the decision to accept the Netflix transaction. The lack of transparency on basic financial matters continues to raise questions.
Paramount's CEO remains hopeful for constructive discussions with Warner Bros. Discovery's Board. He believes the best outcome would be for the board to exercise its right under the Netflix Agreement to engage with Paramount. Ellison reaffirmed his commitment to a collaborative negotiation that benefits both companies and all stakeholders.
