The Warner Bros. Discovery Board of Directors rejects Paramount's updated takeover bid, CNN reports, writes UNN.
Details
"Warner Bros. Discovery has once again chosen Netflix as its preferred bidder over Paramount. On Wednesday, the WBD board of directors informed shareholders that Paramount's revised offer last month is still not as attractive as the existing deal with Netflix, although Paramount said it had addressed many of Warner Bros.' biggest concerns," the publication states.
As the publication writes, "the WBD board of directors called Paramount's hostile takeover bid 'inadequate' and excessively risky."
In a letter to shareholders, the board of directors, as noted, "compared Paramount's offer to a leveraged buyout, a financial process that relies on using mostly borrowed funds to acquire a company."
Paramount is much smaller than WBD, so "to make the deal happen, it intends to take on an extraordinary amount of additional debt – over $50 billion – through arrangements with several financial partners," the WBD letter states.
The letter adds that this structure "creates significantly greater risk for WBD and its shareholders," including the possibility of the entire takeover plan falling apart, compared to "the certainty of a merger with Netflix."
Paramount tried to allay financing concerns by pointing to the fact that one of the world's richest people, billionaire Larry Ellison of Oracle, is funding a significant portion of the proposed takeover. His son, David Ellison, CEO of Paramount, started a bidding war for WBD last year, making an unsolicited bid for assets including CNN.
WBD, led by CEO David Zaslav, then held an auction and accepted Netflix's offer of $27.75 per share for Warner Bros. and HBO, with $23.25 in cash and the rest in Netflix shares.
Paramount offered $30 per share and made this offer public after the WBD board of directors rejected it. "But the board of directors continues to insist that Paramount's offer is inferior," the publication writes.
Along with concerns about debt financing and burdensome terms associated with the offer, WBD cited the potential value of its cable assets, which Netflix is not acquiring.
WBD's cable channels, including CNN, will be spun off into a new public company called Discovery Global later this year. The Warner board argued that Discovery Global would have significant value on its own, while Paramount valued it at only $1 per share.
When Paramount first announced its hostile takeover bid, WBD called the offer "illusory" and questioned the financing, which largely came from the royal families of Saudi Arabia, Qatar, and Abu Dhabi.
In response, Paramount stated on December 22 that Larry Ellison would personally guarantee the $40.4 billion he is investing to finance the $78 billion deal. The Ellisons also committed to allowing WBD shareholders to look into the finances of their family trust, and Paramount increased the breakup fee it would pay WBD to $5.8 billion, matching Netflix's promised payment.
However, in this revised offer, Paramount did not raise its bid above $30, the publication indicates.
"Now Paramount has to make a decision: it can withdraw the offer, raise the bid, or demand a vote from WBD shareholders," the publication states.
The hostile nature of Paramount's offer means that WBD shareholders can reject the board of directors' recommendation if the company decides to take the matter directly to shareholders, the publication explains.