In a major development shaking the global media landscape, the board of directors at Warner Bros Discovery (WBD) has delivered a firm and unanimous rejection of a colossal $108 billion hostile takeover bid from Paramount Skydance. The board has instead thrown its full weight behind a previously announced merger agreement with streaming giant Netflix.
Board Slams Paramount Offer as "Misleading" and "Inadequate"
In a detailed, nearly 1,400-word letter addressed to its shareholders, the WBD board pulled no punches in its criticism of the proposal from Paramount Skydance, which is led by CEO David Ellison. The board described the bid as "misleading" and "inadequate," while warning shareholders of the "significant risks and costs" associated with it.
A central point of contention highlighted by the board is the financing of the Paramount Skydance offer. The board accused Paramount Skydance of being deceitful by claiming it has a "full backstop" from the wealthy Ellison family. "It does not, and never has," the letter stated categorically. Instead, the board claims the offer relies on an "unknown and opaque revocable trust" for a crucial $40.65 billion equity commitment, which it deems an unreliable source of funding.
This rejection comes amidst shifting alliances in the bid. Jared Kushner’s Affinity Partners has reportedly withdrawn from the Paramount Corporation's bidding group. However, the bid still retains substantial backing, including $24 billion from Gulf states, an additional $1 billion from China's Tencent, and a collaboration agreement with Redbird Capital Partners.
Why Netflix Deal is the "Superior" Choice, Says WBD
Despite Paramount Skydance's offer of $30 per share being nominally higher, the WBD board is adamant that the Netflix merger provides "superior, more certain value" for its shareholders. The board's confidence stems from the binding nature and financial solidity of the Netflix agreement.
Netflix has officially communicated to its staff about the acquisition of Warner Bros, effective December 5. The deal involves a total cash consideration of $82.7 billion at $27.75 per share. This acquisition specifically covers the film and television production entities of Warner Bros, including the prized assets of HBO and HBO Max, but excludes Discovery Global. The total equity value of the Netflix merger is pegged at $72 billion.
The WBD letter breaks down the value for shareholders: $23.25 in cash, plus $4.50 in shares of Netflix common stock, plus the value of Discovery Global shares and future upside potential. In contrast, the board slammed the Paramount Skydance bid for its risky capital structure, which would leave the combined entity with a high debt-to-EBITDA ratio and vulnerable to market changes.
Regulatory Risks and Deal Certainty
The board also addressed concerns about regulatory hurdles, a critical factor in such large-scale media mergers. It stated that after careful review with its advisors, it does not believe there is a material difference in regulatory risk between the two proposals. However, Netflix has agreed to a hefty $5.8 billion regulatory termination fee, which is higher than Paramount Skydance's $5 billion break fee, offering WBD more protection.
Furthermore, the WBD board labeled the Paramount Skydance tender offer as "illusory." They pointed out that the offer can be terminated or amended by Paramount Skydance at any time and is not a binding merger agreement. They also noted that global regulatory approvals could take 12-18 months, making the current expiration date unrealistic and creating deep uncertainty for shareholders.
The board warned that accepting the Paramount Skydance offer could trigger additional costs for WBD shareholders, including a $2.8 billion termination fee payable to Netflix and approximately $1.5 billion in financing costs—expenses that Paramount Skydance has not offered to cover.
In conclusion, the Warner Bros Discovery Board of Directors has made its position unequivocally clear. After what it describes as a "full, transparent and competitive" review process involving dozens of meetings and calls with all parties, including multiple in-person meetings between WBD CEO David Zaslav and the Ellisons, the path forward is with Netflix. The board has unanimously recommended that shareholders reject the Paramount Skydance offer and support the Netflix merger, which it believes delivers compelling and certain value.
