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WBD Board Recommends Rejecting "Inadequate" Paramount Hostile Bid

Warner Bros. Discovery's board outlines its reasons for recommending that shareholders reject Paramount Skydance's hostile bid offer.

After David Ellison and the team at Paramount Skydance initiated a hostile bid for Warner Bros. Discovery (WBD), aiming to derail the announced deal between Netflix and WBD, WBD's board announced that it would review Paramount Skydance's hostile bid and offer its recommendation to shareholders within 10 business days (no later than Friday, December 19th). The tender offer from Paramount Skydance would be for $30/share in cash, compared to Netflix's offer of $27.75/share, which would be a mix of cash and some stock, with shareholders acquiring a stake in the spinout of the linear networks. In total value, you're looking at Netflix's deal coming in at $82.7 billion, while Paramount Skydance's deal would total $108.4 billion. A key difference is that while Paramount Skydance is looking to purchase WBD as a whole, Netflix is only eyeing the studios and streaming service.

On Tuesday night, Bloomberg reported that the WBD board would be keeping its word to have its recommendation to its shareholders by the end of the week, but it wouldn't be good news for Paramount Skydance. Sources in Bloomberg's reporting shared that Paramount Skydance's hostile takeover bid will be rejected "due to concerns about financing and other terms." The report added that WBD's board "still views the company's existing agreement with Netflix Inc. as offering greater value, certainty and terms than what Paramount has proposed." Bloomberg's reporting would be confirmed on Wednesday morning, with the WBD board formally urging its shareholders to reject Paramount Skydance's in a three-page letter outlining the reasons for its decision.

As previously reported, a major concern of the WBD board was the uncertainty surrounding exactly how much financial backing was stemming from the Ellison family, as compared to RedBird Capital, Apollo and three Middle East sovereign wealth funds. "PSKY's [Paramount Skydance's Wall Street ticker symbol] most recent proposal includes a $40.65 billion equity commitment, for which there is no Ellison family commitment of any kind. Instead, they propose that you rely on an unknown and opaque revocable trust for the certainty of this crucial deal funding. Despite having been told repeatedly by WBD how important a full and unconditional financing commitment from the Ellison family was – and despite their own ample resources, as well as multiple assurances by PSKY during our strategic review process that such a commitment was forthcoming – the Ellison family has chosen not to backstop the PSKY offer," the letter read. The board believes the financial documents submitted "contain gaps,
loopholes, and limitations that put you, our shareholders, and our company at risk."

Additional points in the letter included the WBD board noting that it didn't see any easier regulatory path with Paramount Skydance than it does with Netflix, and that the Paramount Skydance deal was "illusory" because Paramount Skydance would have "the right to amend the offer in any respect (including amending the offer price)." Factoring in that the regulation process could take anywhere from 1-1 1/2 years to complete, the WBD board noted that Paramount Skydance's hostile bid does not offer "any deal certainty" and "provides an untenable degree of risk and potential downside for WBD shareholders."

"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. 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. We are confident that our merger with Netflix represents superior, more certain value for our shareholders, and we look forward to delivering on the compelling benefits of our combination," shared Samuel A. Di Piazza, Jr., Chair of the WBD Board of Directors.

"This was a competitive process that delivered the best outcome for consumers, creators, stockholders, and the broader entertainment industry," Netflix Co-CEO Ted Sarandos said in a statement to WBD shareholders on Wednesday, making the case once again for the streaming service's bid. "Netflix and Warner Bros. complement each other, and we're excited to combine our strengths with their theatrical film division, world-class television studio, and the iconic HBO brand, which will continue to focus on prestige television. We're also fully committed to releasing Warner Bros. films in theaters, with a traditional window, so audiences everywhere can enjoy them on the big screen."

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