Warner Bros Discovery Rejects Paramount's Hostile Takeover Bid, Sets Tight Deadline for Improved Offer
Warner Bros Discovery has formally rejected the latest hostile takeover bid from Paramount Skydance, which offered $30 per share, but in a strategic move, the company is granting the Hollywood studio a seven-day window to submit a superior proposal. This decision was announced in a statement from Warner Bros, highlighting the ongoing high-stakes battle for control of the owner of HBO Max and the iconic "Harry Potter" franchise.
Board Remains Committed to Netflix Merger Despite Paramount's Advances
In a letter addressed to the Paramount board, Warner Bros Chairman Samuel DiPiazza Jr. and CEO David Zaslav emphasized that the board has not deemed Paramount's proposal as reasonably likely to surpass the Netflix merger in value. They reiterated their full commitment to the existing transaction with Netflix, which involves a $27.75-per-share bid for Warner Bros' studio and streaming businesses, totaling $82.7 billion. Paramount's current offer for the entire company amounts to $108.4 billion, but Warner Bros has consistently rebuffed attempts to purchase the whole entity.
The rival bidder now faces a deadline of February 23 to present its "best and final offer," with Netflix retaining the right to match any superior proposal under the merger agreement terms. Warner Bros disclosed that Paramount informally suggested a higher share price of $31, which has piqued the board's interest, leading to this limited engagement period.
Financial Dynamics and Shareholder Reactions
Following the announcement, Paramount shares surged 4.2% in premarket trading, while Warner Bros saw a nearly 2% increase. An unidentified Paramount financial advisor indicated that their offer could be raised to $31 per share if negotiations commenced, with potential for further increases. Warner Bros now anticipates that any final proposal from Paramount will exceed this amount, though key financing issues remain unresolved.
The board outlined several concerns in its letter, including uncertainties over who would cover a potential $1.5 billion junior lien financing fee, the risk of debt financing falling through, and the certainty of equity funding backed by Oracle founder Larry Ellison, father of Paramount CEO David Ellison. While Paramount has dismissed these financing worries as minor, citing Ellison's personal wealth and bank credibility, draft agreements now mandate additional equity funding if debt becomes unavailable to ensure deal closure.
Activist Pressure and Strategic Moves
Warner Bros' decision to engage with Paramount, facilitated by a special waiver from Netflix, marks a significant shift in strategy. This move comes amid mounting pressure from activist investor Ancora Holdings, which holds a stake worth nearly $200 million and plans to oppose the Netflix transaction. Ancora has criticized the board for not adequately engaging with Paramount over a rival offer that includes cable assets like CNN and TNT.
Paramount is also pushing to add directors to Warner Bros' board, with Pentwater Capital Management CEO Matt Halbower, who owns about 50 million shares and supports Paramount's bid, being eyed as a potential nominee. Halbower asserted that all substantive complaints from Warner Bros' board regarding previous offers have been addressed, though the board contends that the amended merger agreement still falls short of a superior proposal.
Timeline and Future Prospects
Warner Bros is proceeding with a shareholder vote on the Netflix merger scheduled for March 20, which would occur after spinning off its Discovery Global cable operations—including CNN, TLC, Food Network, and HGTV—into a separate, publicly traded company. Estimates suggest Discovery Global could fetch between $1.33 and $6.86 per share.
In a recent attempt to sway Warner Bros shareholders, Paramount enhanced its bid without raising the overall $30-per-share offer, instead offering extra cash for each quarter the deal delays beyond this year and agreeing to cover a $2.8 billion breakup fee owed to Netflix if the merger collapses. Netflix responded with a statement expressing confidence in its transaction's superior value, while acknowledging the distraction caused by Paramount's efforts.
This development follows a history of rejected offers, including a public hostile bid launched by Paramount in December and a revised offer in early January that included a personal guarantee from Larry Ellison on $40 billion in equity. As the deadline approaches, the entertainment industry watches closely to see if Paramount can craft a proposal that finally wins over Warner Bros' board.
